New S&P Case/Shiller Index!

The first S&P Case/Schiller Housing Index for Condos has just been released. The Case/Shiller Index is a constant quality index measuring the changes in value of homes over time. Previously, these indices tracked price movements of single family homes only.

Condos are affected by different market forces and appeal to a different segment of the population. Young professionals and the elderly often find community living preferable. Maintenance issues are often taken care of by a management team while community pools, tennis courts, basketball courts, and a clubhouse are often provided.

However, these amenities come at a price, as discussed in previous posts. During the housing boom, developers were building condos at a rapid pace. Now that the economy has slowed dramatically, condo sales have stagnated as buyers conserve cash and are not as willing to pay monthly condo fees. With restrictive association bylaws, it is difficult for condos to differentiate themselves between other units in the same community, driving prices further down and creating a cascade effect.

It will be interesting to see how effective the S&P Case/Shiller Index is at tracking condo price movement. In metro areas, valuation can differ substantially as market forces change within a city block. In areas where land is quite affordable, enormous condo communities have been created, sometimes without sufficient supporting infrastructure and area business. Tracking renovations and new construction raises several other issues as well. That being said, this index remains a great tool to gauge the broad market.

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