Case-Shiller Tiers: High End Takes a Tumble

Here’s our monthly look at Seattle’s price tiers from Case-Shiller. I’d like to start by answering a few questions about these tiers that came up last month. First, all Case-Shiller data is based on single-family homes only, no condos or townhomes. Also, the Case-Shiller definition of the “Seattle area” is King, Pierce, and Snohomish counties. Lastly, some people were wondering how the tiers are chosen. Here is the explanation from the Case-Shiller methodology pdf:

The Division of Repeat Sales Pairs into Price Tiers
For the purpose of constructing the three tier indices, price breakpoints between low-tier and middle-tier properties and price breakpoints between middle-tier and upper-tier properties are computed using all sales for each period, so that there are the same number of sales, after accounting for exclusions, in each of the three tiers. The breakpoints are smoothed through time to eliminate seasonal and other transient variation. Each repeat sale pair is then allocated to one of the three tiers depending on first sale price, resulting in a repeat sales pairs data set divided into thirds.

Now let’s move on to the graphs. First up is the straight graph of the index from January 2000 through January 2008.

Case-Shiller Tiered Index - Seattle
Click to enlarge

While the performance of the three tiers has diverged somewhat since 2004, prices in all three tiers have retreated back to approximately August 2006.

Here’s a chart of the year-over-year change in the index from June 2002 through January 2008 (I selected that date range to match the time-shifted graph in the standard Case-Shiller posts).

Case-Shiller HPI - YOY Change in Seattle Tiers
Click to enlarge

Only the high tier has yet to dive into year-over-year negative territory. Both the low and the middle tier sit at over 2% negative.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

Case-Shiller: Decline from Peak - Seattle Tiers
Click to enlarge

Wow, the high tier really took a tumble last month, making up pretty much all the ground it had lost to the other two tiers. Now all three tiers sit at around 6% below their peaks.

So even though prices in the high tier rose the slowest and peaked the latest, right now they’re falling the fastest. It will be interesting to see if this trend continues as things unwind.

(Home Price Indices, Standard & Poor’s, 03.25.2008)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

16 comments:

  1. 1
    vboring says:

    well, according to the CPI, 100 dollars from 2000 is worth about 125 dollars today.

    if we really believe the Shiller analysis that says that house values essentially do not change over time (in inflation adjusted dollars), the C-S index has to run all the way down to 125 from the 180 it is at today.

    about a 30% drop.

    this is only a reasonable claim if we think that Seattle hasn’t changed significantly since 2000 and if we assume that no government or market intervention will be important.

    according to this tier analysis, the low end will correct the most.

  2. 2
    Plissken says:

    I don’t want to reignite the whole debate over Seattle’s status as a “world class city” but it’s pretty clear that it isn’t the city it was 10 years ago. We’re still a two newspaper town but our days as a two company town are over.

  3. 3
    Ben says:

    It makes sense for the high end to drop last. People with the most money shop in the high end, they probably get credit more easily, etc.

    I am starting to see more price drops around the Eastside, both with new and existing homes. Redfin is good for watching this. Although I curiously see price histories where people have raised their prices for a while.

  4. 4

    So within the city of Seattle, it seems like there really is practically no low tier, houses under 319k, or at least a very tiny number, and I’m guessing that most of the low tier are in Pierce and Snohomish.

  5. 5
    deejayoh says:

    I think that “percent off peak” chart is the most telling. News stories quote the negative 1.3% YoY as a big deal. It’s a much bigger deal that we are 5.5% off from the peak in only 6 months. That’s an annualized 11.1% rate of decline.

    So in other words, if we keep dropping at the current rate, this July we are looking at 11% off YoY performance for Case Shiller. Probably worse for Median price. And the RadarLogic index shows Seattle dropping at a 16% annualized rate!

    Mathematically, that’s probably about as bad as I see the YoY numbers getting. After that the comps will be the post-dropoff months, which will mute the impact.

  6. 6
    sunsplint says:

    The housing market prices have been trending downwards as people have been rolling back prices in a tentative manner to find buyers.

    I wonder how the feds actions of lowering interest rates will play out for the ARM resets. I think that people will be a little better off and there won’t be a huge panic in that crowd. (unless they were seriously leveraged to begin with). I don’t think that is going to be the primary catalyst to drive prices downwards. The catalyst may be the people who panic will do so because of falling housing prices naturally deflating from their unsustainable levels. Its the upside down mortage crowd who will be walking away from homes or declaring bankruptcy or selling at huge losses. This will in turn drive panicky selling practices. The realtors will just stand by and collect checks as this new crowd pushes transaction volumes. Every new panicky sale will push the prices downward.

  7. 7
    kellynutt says:

    Every market is so localized, I do some new construction sales for a higher end builder, right now the builder has I believe 11 communities being built. The builder adjusted prices through January, but we have had more sales in the last couple months and the prices have actually been increased and homes are still selling. Prices are defeinetely down from last year, and I am not saying the market has corrected itself yet. Homes just need to be priced right to sell in today’s market.

  8. 8
    Everett_Tom says:

    You know, looking at all this one more thing kind of popped out for me.

    Many of these numbers are percentages, and a negative percentage can pack a larger wallop to the base number. What do I mean? A simple example (with numbers that make the math easy..)

    from 50 to 100 is a 100% increase
    but from 100 back to 50 is a 50% decrease.

    (This gets less pronounced when numbers are smaller)
    from 50 to 55 is up 10%
    from 55 to 50 is down 9.09…%

    So if homes are up 10% over one year, and down 10% the next year.. the prices aren’t what they were two years ago.. they’re lower… I wonder how many people pick up on that..

  9. 9
    jon says:

    “so that there are the same number of sales, after accounting for exclusions, in each of the three tiers.”

    If hypothetically there was a surge in middle or low tier sales, it would make the top tier price come down, even though prices might not have changed at all, because of the way they compute the tiers. It is the median effect all over again.

  10. 10
    Joel says:

    In semi-related news Fortune names Bellevue the number 1 place to live and start a company.

    From the article

    Pros: Talented workforce, growing downtown
    Cons: Pricey homes, high cost of living

  11. 11
    Ubersalad says:

    Hahahah, I went to high school with Kelly Nutt, but I’ll choose to remain anonymous.

    If you truly believe that overall happening in the area won’t effect certain community, and perhaps you are overlooking too many other factors.

  12. 12
    Greg Perry says:

    On the Eastside, inventory for lower priced homes are absorbing fairly rapidly. The high end is not moving at all.

    Here are a couple of Eastside area studies:
    Redmond: http://www.workingforyou.typepad.com//realestate/2008/03/redmond-real-es.html

    East Bellevue:http://www.workingforyou.typepad.com//realestate/2008/03/east-bellevue-n.html

  13. 13

    There is affordable housing in Seattle. Around the corner from me in Crown Hill is a SFH for a mere $259K. Cheap!

    Of course, it’s less than 600 sq ft. “A real charmer.”

    I’ll post a pic this weekend on Deflation Land.

  14. 14
    what goes up comes down says:

    kelly you are a nut: this is golden “Homes just need to be priced right to sell in today’s market.” yeah they need to be reduced.

    I can’t wait for things to really get rolling this summer. Isn’t it obvious with supply increasing — the people who are listing now and have been in the last six months — KNOW the market has topped and are trying to get out and maximize profits. If people didn’t think the market was in a down trend — THEY wouldn’t sell and please don’t try the — all the people trying to sell now are relocating or going through a divorce or on their way to the old folks home.

  15. 15
    bitterowner says:

    wgucd,
    Agree completely. I’m having a hard time understanding the new prevailing logic: “the RE market isn’t declining, houses just need to be ‘priced right.'”
    Is it so hard to understand that they mean the same thing?

  16. 16

    […] Here’s our monthly look at Seattle’s price tiers from Case-Shiller. Remember that Case-Shiller data is based on single-family homes only, no condos or townhomes, and that Case-Shiller’s definition of the “Seattle area” is King, Pierce, and Snohomish counties. For anyone wondering how the tiers are chosen, check out last month’s post. […]

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