The homes in 4S are in the middle pricing tier of the Case-Schiller index. The median pricing for that index is comprised of high and lows throughout the region. The homes in 4S and other nearby communities obviously represent the most desirable end of that pricing tier.

Some smaller homes in 4S may fall into the middle tier, but most of 4S is obviously high tier. Case-Shiller defines high tier as houses worth over $629470. Right now I see 7 listings below 600k, 43 listings in 600k-800k range, and 23 listings above 800k.

Being high tier, 4S is doing exactly what it’s supposed to do. Subprime was not a factor, neg-am time hasn’t come yet, and 100% financing was not widespread, therefore there aren’t that many foreclosures and distressed sales. Apparent stability of the market creates a (wrong) impression that there was no bubble in 4S and keeps the idea of homeownership in 4S attractive.

Mid-’07 jump in jumbo rates is the main reason why we’re seeing any high-tier depreciation. On top of that, collapsing prices of lower tiers reduce the pool of potential buyers and lead to slower sales. That is a slow mechanism. It may strengthen as the gap increases. By my calculations, we’ve crossed long-term equilibrium price ratios in late ’07. Further declines in lower tiers should create increasing drag on 4S.

We may see some interesting changes in buyer attitudes (and thus prices) if Mira Mesa sinks another 10% by the end of this spring buying season. Real fun will start by the end of ’09 as bubble neg-ams start to reset.

Feel free to substitute “Carmel Valley” and “Carlsbad” for “4S”.