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Case Shiller Housing Price Index Needs Work

Yesterday's, March 23, Wall Street Journal has an article called Detroit's Population Crash that is worth a read.  Per Census Bureau data Detroits population has fallen to 1910 levels.  Obviously this has made a big impact on housing from home foreclosures and abandonment.

Detroit is one of the MSA's used in the Case Shiller Home Price Index.  Beyond convenience, data continuity and tradition it is starting to be questionable why Detroit is used at all.  We often see a corporation in one of the equity indexes go out of business or decline below a certain metric like market cap and they are removed from the index because they are no longer relevant.  This concept should be applicable for Case Shiller also.

Detroit appears to be undergoing a long term structural change that they may not recover from very well at least in our life time.  They likely need a whole new urban planning strategy and metric of success rather than home prices because home prices will not recover soon it appears. 

With respect to structural changes one school of thought is that large cities will be driven by higher end work along with centers of knowledge and learning and a symbiotic relationship will thrive between the work centers and the learning centers.  One example of this is Stanford and the general Silicon Valley/San Francisco area.  Thus old industry cities decline and new industry cities thrive over time and market becomes bipolar although on average it might look fine.

This makes the Case Shiller Home Price Index of MSA results similar to an equity index of thriving companies along with enough failing companies to weight it down with bankruptcy results.  This does not seem to make sense for really understanding the market and it glosses over areas that may need unique policy prescriptions.