Today we have a guest post from Burbed reader Greg Fielding. Greg has a real estate blog, Bay Area Real Estate Trends, and even though he’s a real estate agent, he is not a Realtard. If you check out his site, you’ll find it rather free of Now Is The Time To Buy. For someone who makes a living helping people buy or sell houses, he sure spends a lot of time over on patrick.net.
Greg is based in Contra Costa County, which we haven’t covered enough on this site. Be sure to let him know if you think his analysis is relevant to the Real Bay Area (if anyone can figure out where it is in 2012).
Anyway, please give Greg a big, warm, RBA welcome to the front page today.
Tale of Two Markets: Breaking Down Case-Shiller Tiered Indices
Following up on the latest Case-Shiller Home Price Index report for the Bay Area, let’s break down index into top, middle, and lower tiers. The result shows two distinctly different markets since the price lows in the Spring of 2009.
Just as Wall Street has diverged from Main Street, high-end neighborhoods are enjoying a different reality than the rest of us.
The lower and middle-tiers are generally following the same pattern. When the supply of foreclosures was turned off, interest rates dropped, and buyer incentives kicked in, both market segments rallied. Then, when that temporary stimulus was exhausted, they resumed their declines at a paces of roughly 10 percent per year.
However, the top-tier – homes priced above $579,803 – are only declining at a pace of roughly 3-4 percent per year.
There are lots of possible reasons. Among them, that higher home prices are more directly tied to the stock market, which has performed remarkably well. In April of 2009, the S&P 500 Index was in the 800′s. Today it is at 1,277 – an increase of roughly 50 percent. Also, higher-paying jobs have survived the recession better than lower paying retail-type jobs that are more directly tied to consumer spending and sentiment. Or, that wealthier homeowners with higher-paying jobs were more likely to be able to refinance their homes to avoid foreclosure. And there are probably a dozen other reasons that all contribute to the divergence.
One other note: high-end home prices are holding relatively stable in spite of the reduction in conforming loan limits. Buyers literally need 100K+ more of cash to buy the same high-end home, and they are still doing it. So far, anyway. Honestly, I am shocked by this.
One thing is clear: this circle will square itself at some point. Either the mid and lower-tiers will rally (or stabilize) and the gap will narrow over time. Or, the pillars holding up the high-end will eventually give way and prices will begin to fall at a pace that matches the other tiers.
Written by Greg Fielding. This article originally appeared on Bay Area Real Estate Trends on January 4th. Republished with permission, nay, encouragement of the author.