Low-Priced Home Whackage in February's Case-Shiller Index

Submitted by Rich Toscano on April 26, 2011 - 6:44pm

Home price data that is more timely than the Case-Shiller index has suggested that San Diego prices, on the whole, may be undergoing a bit of a spring thaw.  So I don't make too much of the fact that February's Case-Shiller index (which is calculated based on sales that took place in December, January, and February) declined by 1.3 percent in aggregate.

It is interesting, however, that the low-priced tier of the index dropped as much as it did.  After weathering the recent fall/winter lull better than the other tiers, the low-priced homes were spanked for 2.7 percent in February.  The middle tier was down 1.4 percent and the high tier by .5 percent for the month.



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Submitted by urbanrealtor on April 27, 2011 - 9:28am.

This is consistent with my experience that a disproportionate number of short sales are in the lowest tier.

Those take significantly longer to close from the point of a signed contract.

In other words, if you take 100 properties that all go to contract on, say September 1, you will find that the closings will get lower as time goes on because most of the later closings (closing in, say December through Feb) will be for lower numbers (since they are shorts).

Its very quick to close a luxury home in La Jolla with ultra-qualified buyers (maybe cash buyers) and lots of equity.

It is a lot slower to close a North Park condo conversion with 3 liens and 150k of negative equity where the buyers are first timers using an FHA loan.

Lower prices generally lag.

Submitted by Rich Toscano on April 27, 2011 - 9:34am.

Interesting and it seems pretty plausible. So if we get a spring bounce here, we might expect the low end to not participate at first, but then to make a move to the upside.

Submitted by urbanrealtor on April 27, 2011 - 10:05am.

Rich Toscano wrote:
Interesting and it seems pretty plausible. So if we get a spring bounce here, we might expect the low end to not participate at first, but then to make a move to the upside.

Sort of.
I think it is more prevalent in lower prices but also generally more obvious in lower volume periods (like the end of the year).

For example if there is a lot of closing volume, a lot of the closing will be non-shorts that opened contract in the last 21-45 days.

In a low-closing-volume period, we will see a large number of closings with contracts more 60 or 90 days old.

Also, its easier for overworked loss mitt departments to complete files when they have fewer files on their plates.

That is why a lot of my files get final approval between August and February.

Anyway, this is prevalent in anecdotal experience and I suspect it would be borne out in quantitative analysis.

Problem is, date of contract is generally harder to search than date of closing (eg: Battiata).

Submitted by ocrenter on April 28, 2011 - 3:53pm.

I think the lower end simply suffer from high volatility just by virtue of being "lower end."

during the peak, the lower end inflated a lot steeper and higher because it was more prone to speculator activities.

because of higher speculator activities, at the bottom it also crashed a lot harder.

when the government tried to manipulate the market with incentives, it was also the lower market that got the most stimulation as it was the main target of first time home buyers. also, when the rich wanted to move investments away from the stock market, they also targeted the low end for investment properties.

now that the stock market is doing better and the government incentives are gone, the low end once again falters a lot more than the other segments.

it is simply the phenomenon of "low barrier to entry and exit" in this segment of the market that feed this volatility.

Submitted by Jazzman on April 30, 2011 - 9:11am.

Prices are coming down because they are still too high, doesn't seem implausible? Affordability measures based on historically low interest rates seems fundamentally flawed when one considers that the credit markets were responsible for getting us into this fine mess. The worst is over, so what is there really to fear from a gradual decline in prices over the next one to two years? It's still seems to be taboo.

Submitted by briansd1 on April 30, 2011 - 12:24pm.

ocrenter wrote:
I think the lower end simply suffer from high volatility just by virtue of being "lower end."

during the peak, the lower end inflated a lot steeper and higher because it was more prone to speculator activities.

because of higher speculator activities, at the bottom it also crashed a lot harder.

when the government tried to manipulate the market with incentives, it was also the lower market that got the most stimulation as it was the main target of first time home buyers. also, when the rich wanted to move investments away from the stock market, they also targeted the low end for investment properties.

now that the stock market is doing better and the government incentives are gone, the low end once again falters a lot more than the other segments.

it is simply the phenomenon of "low barrier to entry and exit" in this segment of the market that feed this volatility.

That's a good way of putting it OC renter.

As we know, the stimulus and bailouts benefited those are the higher income brackets. They have more wherewithal to hold on to their properties.

Submitted by briansd1 on April 30, 2011 - 12:33pm.

Jazzman wrote:
The worst is over, so what is there really to fear from a gradual decline in prices over the next one to two years? It's still seems to be taboo.

Nothing, except that increases in house prices create a wealth effect that feeds economic growth.

Housing is no longer the pillar that holds up the rest of the economy which is growing despite the downturn in housing. So it makes sense for the government to slowly withdraw support. That will let housing vacillate to find fundamental support.

Remember that homeownership rates were the highest at the peak already. Housing now depends on household creations -- new buyers need to buy before existing owners can move up.

Submitted by CA renter on May 2, 2011 - 10:46pm.

Jazzman wrote:
Prices are coming down because they are still too high, doesn't seem implausible? Affordability measures based on historically low interest rates seems fundamentally flawed when one considers that the credit markets were responsible for getting us into this fine mess. The worst is over, so what is there really to fear from a gradual decline in prices over the next one to two years? It's still seems to be taboo.

Could not agree more, Jazzman. People seem to think that the levitating housing market (resulting from the trillions of dollars that comprise a good portion of our national debt, and too-low interest rates -- which are what caused all the problems to begin with) is sustainable without govt intervention.

The only reason we haven't seen steep declines in the higher-mid to higher-end is because the PTB began their manipulations just as the declines were rolling into these neighborhoods.

We still have quite a way to go before we reach "the bottom," IMHO.

Submitted by sdrealtor on May 3, 2011 - 4:49pm.

You will still be feeling that way well after I have a full stomach on your tab;)

Submitted by CA renter on May 4, 2011 - 12:15am.

Ha! ;)

Submitted by FormerSanDiegan on May 4, 2011 - 3:11pm.

CA renter wrote:

We still have quite a way to go before we reach "the bottom," IMHO.

I agree we do have quite a way to go before we reach the bottom ...
In fact, I will go out on a limb and define "quite a way" to be about -25 months from now.
(note the negative sign).

Submitted by urbanrealtor on May 4, 2011 - 9:46pm.

CA renter wrote:
Ha! ;)

My son's college fund thanks you.

Submitted by CA renter on May 4, 2011 - 11:58pm.

FormerSanDiegan wrote:
CA renter wrote:

We still have quite a way to go before we reach "the bottom," IMHO.

I agree we do have quite a way to go before we reach the bottom ...
In fact, I will go out on a limb and define "quite a way" to be about -25 months from now.
(note the negative sign).

Agreed, but if they start a new round of "saving homeowners" (banks) it could easily be dragged out for many more years.

Submitted by CA renter on May 4, 2011 - 11:59pm.

delete

Submitted by CA renter on May 4, 2011 - 11:59pm.

urbanrealtor wrote:
CA renter wrote:
Ha! ;)

My son's college fund thanks you.

Lower prices = more transactions = bigger college fund! :)

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