Should you buy protection against a down NYC real estate market?

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We were intrigued by a story in this weekend’s NY Times about a San Francisco company that has started selling protection against declines in home prices.

If you own in Manhattan, the price of the new Equity Protection product is around 1.5 percent of the current value of your house, co-op or condo.   You are reimbursed for any loss in market value when you sell, so long as you wait at least two years to move on.

Property values are determined using a housing price index which measures average property values by zip code.

Wondering whether a zip-code-based value gauge is accurate enough in the hyper-local Manhattan real estate market, we checked in with BrickTank expert and noted New York City real estate appraiser Jonathan Miller of Miller Samuel, Inc.

He says that while such an index is a logical way to track values of single-family subdivision housing typically found in the suburbs, it’s less suited to a vertical city like ours.

Factors like floor level, exposures, and unit amenities (which are not currently noted in public records) render zip-code-based price indexes less than optimal here.

"For example, the 10021 zip code includes 5,000 square foot apartments on Fifth Avenue and 400-square-foot studios in tenement walk-ups between First and York Avenues," says Miller. "Neighborhood boundaries better reflect price patterns."

As for the zip-code indexes, says Miller, who also writes a very smart real estate market blog, “their time will come when public record is more uniform and granular, but for now, these sorts of services are only as reliable as the data that goes into them.”

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