With Government Help, Entry-Level Homes Get Pricier Again

Submitted by Rich Toscano on April 4, 2010 - 7:47pm
Last week's release of the Case-Shiller home price data for January showed that once again, prices for cheaper homes rose while those of more expensive homes stagnated.

I wanted to focus a bit more on this disparity by charting the home price tiers over multiple timeframes.  This first chart shows how much the tiers have rebounded since their respective troughs in early 2009:



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Submitted by outtamojo on April 5, 2010 - 12:08am.

If that low price graph keeps going up we may just get some move-up buyers eh? But alas, that would be getting a little ahead of ourselves I know;but as some here like to project a trendline to zero, why can't I project a trend line to the moon : )

Submitted by peterh on April 5, 2010 - 6:31am.

As is said many times, this too shall pass. The government support can't continue forever. Entitlements will, in the not to distant future, eat up much gov't money and there be little, if any, left for propping up real estate. I look for the curve for the lower priced homes to soon flatten out and resume their downward trend to the more reasonable 3-4X income.

Submitted by blahblahblah on April 5, 2010 - 8:51am.

I think the government will stop propping up the housing sector as soon as:

They stop propping up the banking sector
They stop propping up the agriculture sector
They stop propping up the armaments sector
They stop propping up the oil sector

I could go on and on but there's no point. Welcome to the Free Market!

Submitted by jpinpb on April 5, 2010 - 9:18am.

You certainly forgot the automotive sector. That's a good one. But true, you could go on. Point taken.

Submitted by blahblahblah on April 5, 2010 - 9:29am.

Oh yeah how can I forget Government Motors! Actually I am glad they saved GM so that I can buy a Volt in a couple of years, that thing looks awesome.

And I forgot the pharmaceutical sector too, remember the big Medicare giveaway from a few years ago?

Submitted by livinincali on April 5, 2010 - 9:57am.

Do we have the data on how much the tiers have changed. For example Low priced is defined as $306K in the current chart but what was it last year, or the year before. Early 2009 saw the bulk of home sales in the very low price bracket while there was little movement in the higher priced markets. Now it seems the middle and low priced market sales rates have slowed down recently while the upper tier markets are seeing some movement. I guess how much can we attribute this to the mix of homes sold. A year ago low priced was probably exclusively somewhere like Oceanside, now it probably includes some Mira Mesa, Chula Vista, etc.

In the end it still probably paints a relatively accurate picture. Low priced homes have seen significant increases in sales during 2009 and prices have increased. You'd expect the Housing Tax credit to have the biggest impact in the lowest priced market segment and it appears to be the case. Now I guess we wonder what happens when the program expires at the end of the month. 10 year bond just hit 4% again today and it might be breaking out to a multi year yield high soon.

Submitted by sdcellar on April 5, 2010 - 1:44pm.

This post illustrates the reasonable counter-argument to my (not really) rant in another post regarding the effects of lower interest rates.

Interest rates should (and I believe would) have less impact if not for the entry level buyer. I mean them no ill will, but it is interest rates that bring the previously unaffordable into the affordable (as in, they can finally buy a house at all). This, of course, has the effect of increasing competition and pushing prices upward.

Pressure at the entry level then puts pressure on the levels above it, but with the effect typically less pronounced as those with more money attempt to seek value and get more for their dollar. It's sort of the opposite the "squish-down effect" as cited by another local blogger. This certainly seems to be supported by the historical data.

(and, of course, this applies to any any type of incentive / scheme / measure that makes home ownership easier to achieve, not just lower interest rates.

Submitted by Rich Toscano on April 5, 2010 - 3:42pm.

Interesting counterpoint post by Eugene:

http://sdhpi.blogspot.com/2010/04/in-his...

Rich

Submitted by ybitz on April 5, 2010 - 5:42pm.

by the way, I've always been curious what "San Diego" covers according to Case-Shiller. Is this San Diego city only, or the whole county?

Submitted by Rich Toscano on April 5, 2010 - 6:05pm.

County.

rich

Submitted by AN on April 5, 2010 - 11:41pm.

Rich Toscano wrote:
Interesting counterpoint post by Eugene:

http://sdhpi.blogspot.com/2010/04/in-his...

Rich


Very interesting indeed. As the saying goes, a picture is worth a thousand word. This picture summarized what I was trying to say to CAR in the other thread (but failed to get my point across).

Submitted by sdrealtor on April 6, 2010 - 12:53am.

My take on the dark band from LJ to Solana Beach comes down to a few things. These are relatively low turnover prime coastal areas where people stay until they die, then turnover the properties to their kids. These areas tend to be favored by fiscally conservative, relatively high income folks who buy what they can easily afford (i.e. think of folks like the retired UCSD professors/physicians/attorneys/financial execs/business owners in LJ, Del Mar & Solana Beach) which createa v ery stable base. Lastly, SD has been discovered nationally and internationally among the upper class in a way that it wasnt known 20 years ago. IMO, these things have created a scenario where it is different now in these communities and wont ever go back to what it was. I could wrong but I dont think I am.

Submitted by 34f3f3f on April 6, 2010 - 1:53am.

You may be right, but these areas are over-rated, hence over-inflated, and that can never be over-stated.

Submitted by sdcellar on April 6, 2010 - 9:14am.

It really seems like it comes down to that it's a relatively narrow slice of the county. Solana Beach has, what, 13,000 residents? As the county continues to grow, you simply have more folks targetting the same areas.

That said, the interesting red blob on the map to me is the one encompassing what looks to be University Heights, Normal Heights, North Park and South Park. Those areas have certainly become more gentrified in the last 10-20 years, but I'm still a bit surprised that it seems to be the hottest spot in the county.

That said, I personally still don't consider any of these areas home free. Being at the outer reaches, the butterfly effect never really had a chance to land in these areas and as slowly as properties might come up, they still don't always fly right off the shelf.

Submitted by sdcellar on April 6, 2010 - 9:25am.

Also remember, it's not really like these (red) places doubled in 10 years, it's more like 5-7 since most of it happened between 2000 and 2005/6 Nothing made any of these areas that much more attractive in these timeframes. Other than the notable exception of actual property improvement (and does anything capture that, including C-S?), again possibly relected in the central SD red zone.

And the blue areas? Well, they probably were red, but the butterfly had hit them by mid-2009.

Submitted by Eugene on April 6, 2010 - 3:05pm.

Quote:
My take on the dark band from LJ to Solana Beach comes down to a few things. These are relatively low turnover prime coastal areas where people stay until they die, then turnover the properties to their kids. These areas tend to be favored by fiscally conservative, relatively high income folks who buy what they can easily afford (i.e. think of folks like the retired UCSD professors/physicians/attorneys/financial execs/business owners in LJ, Del Mar & Solana Beach) which createa v ery stable base.

Wasn't that the case already in 1990?

It could be that there was a semi-permanent shift of the distribution of high-paying jobs towards the 92121 zip code in the last decade. Which is why, the further you get from 92121, the cooler things become.

Alternatively, it could be that people in 92121 area are more likely to still have jobs in this recession (and the dark band from LJ to Solana Beach is their preferred homebuying area). In that case, blue areas will start catching up when the economy improves.

Quote:
And the blue areas? Well, they probably were red, but the butterfly had hit them by mid-2009.

I thought about making an animation that showed how things evolved over time, but I don't know enough Flash (any Flash, really...)

Edit: on the second thought, looks like I can't even use flash on that site. I'll make an animated gif.

Submitted by CA renter on April 7, 2010 - 3:18am.

AN wrote:
Rich Toscano wrote:
Interesting counterpoint post by Eugene:

http://sdhpi.blogspot.com/2010/04/in-his...

Rich


Very interesting indeed. As the saying goes, a picture is worth a thousand word. This picture summarized what I was trying to say to CAR in the other thread (but failed to get my point across).

I totally understand where your theory is coming from, AN. It's just that I disagree with it to some extent.

You could visually see the downturn moving into the mid/high areas, and just as it was about to accelerate, the govt stepped in. You have to understand that I've been watching real estate in specific zip codes (high, middle, and low; so I'm aware of trends and watch how the different sectors relate to one another) for many, many years and am out and about in real life looking at things and talking to a variety of people on a very regular basis (in San Diego and L.A.). I'm not the kind of person people can accuse of "sitting behind my computer." I know what I know, and I saw what I saw. There is no way around it: the higher end was saved by government intervention.

Real estate cycles do not hit the same areas at the same time. They tend to roll from one area to the next, and then back again. There are variations in types of RE, too. The govt stepped in after it hit the lower end and was starting to affect the higher end. If you were out on the streets, you could literally see the declines seize up; and it correlated exactly with the govt's intervention.

Only time will tell what really held up the higher end, but I'm not nearly as convinced that the higher end is bullet-proof. We shall see...

Submitted by jpinpb on April 7, 2010 - 8:52am.

sdcellar wrote:

And the blue areas? Well, they probably were red, but the butterfly had hit them by mid-2009.

Would be interested in knowing what color the blue areas were in the 2005-2008 time frame.

Submitted by jpinpb on April 7, 2010 - 9:05am.

CA renter wrote:

Only time will tell what really held up the higher end, but I'm not nearly as convinced that the higher end is bullet-proof. We shall see...

So far it has created a greater discrepancy between high end and low end, that's for sure.

Submitted by sdcellar on April 7, 2010 - 2:31pm.

I like Eugene's comment that the blue areas are going to go back to being red. I hadn't considered that a given at this point in time. At least not in the way I took him to mean it.

Submitted by AN on April 7, 2010 - 8:28pm.

CAR, what's your definition of mid/high areas? Are you referring to certain zip code or the price? Is a $800k house in Escondido the low areas. Is a $400k house in Carlsbad the mid/high areas?

Submitted by CA renter on April 8, 2010 - 12:37am.

AN wrote:
CAR, what's your definition of mid/high areas? Are you referring to certain zip code or the price? Is a $800k house in Escondido the low areas. Is a $400k house in Carlsbad the mid/high areas?

Good question, and I suppose there is some subjectivity on my part. IMHO, the mid/higher end is what would have sold for ~$700K-$1MM at the peak, and is now down only marginally (maybe $100K). Of course, there are some homes in these same areas that were priced a bit above and below that range during the bubble, but at those price levels (say $600K-ish) the areas can merge.

One could certainly say the red sections above are the high-mid to higher-end areas.

Submitted by AN on April 8, 2010 - 9:31pm.

CA renter wrote:

Good question, and I suppose there is some subjectivity on my part. IMHO, the mid/higher end is what would have sold for ~$700K-$1MM at the peak, and is now down only marginally (maybe $100K). Of course, there are some homes in these same areas that were priced a bit above and below that range during the bubble, but at those price levels (say $600K-ish) the areas can merge.

One could certainly say the red sections above are the high-mid to higher-end areas.


OK, so you consider consider an area a mid/high end area when the houses in that area sold for $700k-$1M at the peak, irregardless of its zip code, right?

If that's the case, what I was trying to say, and what Eugene's image show, is that there are several areas in SD that used to sell for $700k-$1M that have declined quite a bit, not just compare to peak but compare to 2000 as well.

I agree that red sections in Eugene's chart are the mid/high to high end areas, but I'm trying to say that the reverse is not true, where not all mid/high to high end areas are in red. Engene's chart shows that Escondido and Chula Vista are both in the blue area. Both of those areas have sub-markets where houses used to sell for $700k+ at the peak and now have dropped to a point where it's either 1/2 off or w/in 20-30% of its 2000 nominal price.

Submitted by sdrealtor on April 8, 2010 - 10:41pm.

CAR
FWIW, my hood which you know well fits squarely in that category and is down about 200K from the peak. Very few areas in this category are off "maybe $100K"

Submitted by CA renter on April 9, 2010 - 2:09am.

sdrealtor wrote:
CAR
FWIW, my hood which you know well fits squarely in that category and is down about 200K from the peak. Very few areas in this category are off "maybe $100K"

Yes, some homes are selling for that much less, but some are selling at or near peak prices (as I'm sure you know). At some points in time, it looks like the market is suddenly getting weaker, but then it picks back up again a few months later (sometimes seasonal, but lots of times, it's very much tied to interest rates).

Seriously, if things were down $200K+ by now, we'd probably be buying (not that we aren't trying, mind you).

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