Sunday, August 28th, 2011

“Sick Housing Market” Ranking Shows Why Many “Top-10” Lists Should Be Deep Sixed by Drew Klacik

The financial news and opinion site 24/7 Wall St. recently ranked Indianapolis number two in its list of America’s 10 sickest housing markets.

I’ve always been fascinated by top-10 lists. Fellow Hoosier David Letterman delivers one every evening. Purdue fans get excited when their basketball team makes the top 10. IU fans hope to earn that distinction too, because recent recruits are ranked in the top 10. Then, of course, there’s the Big 10, which is so enamored of top-10 lists that it retains its name despite having 12 teams.

The Big 10 (12) example points to a big challenge for top 10 list makers. Sometimes, there’s little difference between number 10 and number 11 – or even number 25 for that matter.

A second challenge is that often, a list’s creator fails to fully or even partially explain how the list came to be.

A third challenge is that two different organizations, each ranking the same thing, can come to different conclusions. Take football, for example. The various polls often disagree as to who’s number one.

Given these list-making challenges, I decided to examine Indianapolis’ housing ignominy to determine whether we are justifiably bottom-of-the barrel.

To start, I compared some of the 24/7 Wall St. data for Indianapolis to a few cities that didn’t make the bottom 10.

The key criteria used in this ranking were homeowner and rental vacancy rates for either the 75 largest U.S. cities or, more likely, their metropolitan areas. They excluded from their list any locale that improved its vacancy rate over the last year or quarter and then enhanced the data set with unemployment rates and median home prices.

Of the 75 areas considered, Indianapolis had the fifth-highest home vacancy rate and tenth-highest rental vacancy rate. These are troubling statistics that clearly suggest a supply-and-demand issue. Indianapolis likely needs to reduce the supply of homes and rental units and/or increase demand by attracting more owners and renters.

Tucson, the one city deemed to have a sicker housing market than Indianapolis, had the highest home vacancy rate and sixth-highest rental vacancy rate.

But here’s where it gets confusing: When considering some other housing-market fundamentals, Indianapolis appears very sound. For example, between 2008 and 2010, the median sales price for a home in the Indianapolis metro area increased by $12,100 or 10.9 percent.

The only community on the 10 sickest-housing-market cities list to experience a greater increase in median sales prices was Oklahoma City (13.7 percent). Only two others had any increase at all.

To further confuse matters, Cincinnati, Milwaukee and Minneapolis didn’t make the sick-housing-market cities list, yet all experienced a decline in median sales prices – Minneapolis with a precipitous 15.5 percent drop. That’s certainly sickening to would-be sellers.

In addition to its sales-price success, Indianapolis was one of six sick-housing-market cities to experience a decline in unemployment (from 10 percent in June 2010 to 9.1 percent in June 2011) – generally a positive indicator for the housing market. Meanwhile, Milwaukee, Minneapolis and Nashville (also not on the list of 10) all experienced an increase in unemployment during the same period. If people aren’t working, they struggle to buy houses.

Then there’s population growth. Between 2000 and 2010, Indianapolis grew by 12.6 percent – fourth fastest among the sick-housing-market communities. Only three on the list (Detroit, Dayton and St. Louis) experienced population loss. Yet other cities suffering losses – including Cincinnati and Milwaukee – were somehow deemed healthy for housing. Go figure.

By now, you might be asking yourself how Indianapolis can be increasing employment and gaining population yet still have high vacancy rates and a sick housing market?

At least part of the answer is that between 2000 and 2010, while Indianapolis added 39,963 people, it also added 36,893 new housing units. That’s a lot of property per resident.

While there’s plenty of room to debate the details of Indianapolis’ sick-housing-market ranking, we undoubtedly have serious and difficult work to do if we’re to address our supply-and-demand imbalance while keeping local housing affordable (we rank in the top 10 for that!).

On the other hand, it might be best to not be in the top ten in either the “sick” or “affordable” lists. Then, Indianapolis would have more balanced market fundamentals, fewer vacant houses and better price appreciation.

As for top-10 lists in general, they’re about image. The data provide the real substance. And when it comes to substance, fundamentals matter, as the Butler University men’s basketball team taught us the past two seasons by proving that you don’t need to be in the top 10 to make the Final Four.

Drew Klacik is a policy analyst for the Indiana University Public Policy Institute at IUPUI. He focuses on public policy related to economic development, state and local taxation, affordable housing and neighborhood development.

Topics: Demographic Analysis
Cities: Indianapolis

12 Responses to ““Sick Housing Market” Ranking Shows Why Many “Top-10” Lists Should Be Deep Sixed by Drew Klacik”

  1. Matthew Hall says:

    Detroit and Dayton did lose people; 3 and 1.5 percent respectively, but Cincinnati and St. Louis didn’t experience a loss. Cincinnati’s MSA population grew 6% and St. Louis’ 4.5%. How could a academic ‘policy analyst’ get such basic and relevant facts wrong?

  2. I believe he was referring to city populations (the Indy stats were definitely city populations). But even on an MSA basis, the general comparisons hold true. Cincy and St. Louis were both fairly anemic growers.

  3. Rob says:

    There are really two kinds of lists. There are lists that rank something by a legitimate statistic. For example, most populated cities or metros with the most foreclosures. Then there are lists that are basically fabricated out of thin air, by pumping variables into a formula, weighting them arbitrarily, and ranking by whatever value that formula spits out. For example, “sexiest cities” or “best cities for college grads”.

    In the first case, the lists are what they are. The problem is that most media does a poor job interpreting them, likely because they want sensational headlines. The failure here falls on whoever is inappropriately doing the reporting.

    In the second case, the problem lies deep in the methodology of creating the list. These should never be given any justice; but as long as media keeps talking about them, they’re going to keep getting produced.

    In both cases, media often just accepts the list and reports it for what it is, without doing their own due diligence to figure out why the ranking fell out the way it did.

  4. Listmania says:

    The “24/7 Wall Street” blog is nationally-renowned for publishing rankings that are completely invalid. It is probably best to ignore that site until they are able to hire a real statistician. For example,

  5. Matthew Hall says:

    The city of Indianapolis did not grow 12.6% from 2000 to 2010. It grew a little less than half of that. Indy’s MSA grew 12. 6%. An apple to apple comparison with the municipalities of St. Louis and Cincinnati is the area of Indianapolis public schools which shows an absolute decline. MSA measures are the only ones that count in housing market analyses. The difference between cleveland’s -3% and cincy’s 6% (9%) is greater than that between the indy metro’s 12.6% and cincy’s 6%. (6.6). These differences matter in trying to analyze housing demand.

  6. Vlajos says:

    Indy always has high apartment vacancies. Way too much product.

  7. Andrew says:

    One of the more egregious examples of bad lists, which I was reminded of recently, was of “10 best public transit systems” that were floating around earlier in May (as discussed/taken down by Human Transit at It had places like Portland and Salt Lake City ranking above NYC in terms of best public transit (maybe that’s true right now because of the hurricane, but somehow I doubt it long term!)

  8. Chris Barnett says:

    Drawing a bright line in population growth between Indy and Cincy is valid and accurate, as Indy’s growth was above the national average and Cincy’s below. The line is not background noise.

    That Indy is growing faster than the national average may be a material factor in the overinvestment in housing units cited by Mr. Klacik. (Simplified: Investment chases above-average growth.)

  9. George Mattei says:

    I wonder why the price of housing in Indianapolis went up while the city has a supply problem. That’s quite odd. Anyone know why?

    Is it because Indy’s housing was undervalued prior to the bust; i.e. it has already busted earlier in the decade?

  10. Chris Barnett says:

    George: When you do the math, it’s not too complicated. The 39,963 new people, at average household size, would have required only about 18,000 new housing units. Indianapolis has both a blight/abandonment problem and a foreclosure problem, and the difference between new households and housing supply suggests the combined magnitude of the two issues. (And yes, Indy had a foreclosure rate well above the national average prior to the recession.)

    The two play off each other: with habitable foreclosures (short sales and REO) flooding the market at ridiculously low prices, flippers and rehabbers don’t have to buy the run-down wrecks requiring major reconstruction, which they would otherwise buy in a period of less abundant supply.

    All this leaves the blighted/abandoned properties to the city and core-area community development corporations. Those organizations are knocking down and/or rehabbing the almost-worthless housing as fast as possible. Taking the worst units out of supply and resale stats by demolition, or by heavily subsidizing extensive rehab with HOME and NSP dollars, will inevitably raise average selling price in the marketplace.

  11. Matthew Hall says:

    There are many degrees of difference between midwest metros. It isn’t indy, columbus and everyone else. The differences among them are important and this study’s muddying of the waters seriously undermines its conclusions. Cincy and st. louis have quite different housing market dynamics than milwaukee, cleveland or detroit. If the study’s point is that housing investment chases above average growth why hasn’t columbus experienced the same market failure? You could just as easily argue that unsustainable and misallocated investment in Indy has skewed indy’s development in unsustainable ways as in Phoenix. The real issue is why the greater demand in indy doesn’t seem to feed through into its housing market. Misrepresenting other midwest metros will only make this question harder to answer through any sort of comparative approach.

  12. George Mattei says:


    That’s an interesting analysis. However, I’m not sure you hit the nail on the head. I work for a non-profit that uses HOME nad NSP and other funds to do rehabs in Columbus. Columbus’ issues are very similar to Indy’s as they are similar cities physically. But Columbus’ prices have still dropped significantly since 2008, not risen, and certianly not by $12,000.

    I can tell you that there has not been enough HOME and NSP dollars in Columbus to turn around the market in the entire metro area and make prices increase. Columbus has been very sucessful in getting NSP funds too, so I doubt Indy has gotten more, although I haven’t looked.

    I still feel like there is something else going on. Any thoughts?

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