Case-Shiller Tiers: Middle Tier Gains, Low & High Fall

Let’s check out the three price tiers for the Seattle area, as measured by Case-Shiller. Remember, Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.

Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

  • Low Tier: < $268,947
  • Mid Tier: $268,947 – $395,294
  • Hi Tier: > $395,294

Interestingly, although the overall index fell slightly, the tier breakpoints increased from April to May, which would seem to indicate a shift in the sales mix of homes away from the low end toward the high end. This matches up with what I pointed out on the 8th, that there has been a general trend since the beginning of the year of increasing sales on the Eastside (more expensive homes) and decreasing sales in South King (less expensive homes).

First up is the straight graph of the index from January 2000 through May 2009.

Case-Shiller Tiered Index - Seattle

The low and high tiers both fell, by 0.3% and 0.7% respectively, while the middle tier increased by 0.3%. The “rewind” situation held steady for the third month in a row, with low tier rewound to March 2005 and the middle and the high tiers to May 2005.

Here’s a chart of the year-over-year change in the index from January 2003 through May 2009.

Case-Shiller HPI - YOY Change in Seattle Tiers

Not surprisingly given the directions of their respective indices, the YOY drop in the low and high tiers increased, while the middle tier decreased. Here’s where the tiers sit YOY as of May – Low: -18.4%, Med: -15.7%, Hi: -16.5%.

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

We’ve definitely got a spring price plateau instead of the spring price bounce we had last year.

(Home Price Indices, Standard & Poor’s, 07.28.2009)

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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.

21 comments:

  1. 1
    Indy says:

    Seattle tiers still seem fairly similar in terms of overall performance. But compare Phoenix seasonally adjusted tiered changes from peak!

    High Tier: 224.37 to 117.97 = -47.5% from peak
    Mid Tier: 224.13 to 101.41 = -54.8% from peak
    Low Tier: 238.44 to 70.56 = -70.4% from peak!!! (and -69% from May 2007!!!)

    Now, when a third of your homes are nearly 70 PERCENT DOWN in only two years, and are selling at a rate not seen since 1995 (and forget about inflation), you may indeed be near the bottom, but what a total disaster!

  2. 2
    David says:

    RE: Indy @ 1
    What about seasonal factors? Even Shiller himself pointed to the traditional Summer time uptick as an important factor. Personally I think Seattle has a lot more to fall. We have a lot of Alt-A mortgages that are about to reset.

    Incomes in Seattle have been lagging widely. Many people I have worked with only compensated for this with taking home equity out. That’s how they paid for expensive Seattle schools and the many amenities this city has to offer.

    I think Seattle will be the next LA or SF. We started down their path two years after they did, and we are about to catch up.

  3. 3
    Ben says:

    As much as I like the CS index I think that the low-mid-high tier data is not very useful for analyzing things because the definition of each tier changes every month. Most people who look at the graphs don’t realize that.

  4. 4
    Plymster says:

    The definitions of the tiers don’t change. Each tier represents the lower, middle, and upper third of the homes in the index.

    So far it is interesting to see that the lower tier leads the others on the way down and on the way up. This could be useful as a leading indicator of where middle and upper tier home prices turn.

  5. 5
    Scotsman says:

    RE: Indy @ 1

    70.4%! Oohhh… that’s getting close to the magic 80%. Take out the seasonality, throw in a bit of
    prolonged national economic malaise and we’re there!

    The “Peak Oil” crowd would have values go to zero, because without the cheap energy to power A/C most of those areas are uninhabitable. It could become the Detroit of the south.

  6. 6
  7. 7
    CCG says:

    RE: David @ 2

    Don’t worry, I saw in USA Today that housing has turned the corner. Thanks to that Case-Shiller graph I can clearly see the dramatic surge. Looks like we’re getting some great mileage out of the biggest orgy of communist market manipulation, taxpayer theft, and monetary reflation in the history of the world.

  8. 8
    Indy says:

    The bottom line is that for this situation to reach equilibrium, tiered house prices must fall to no more than 4.25 times tiered local incomes. You can look up income data at BLS, and you’ll see there just aren’t enough wages to sustain prices in most areas even after the dramatic declines we’ve witnessed.

    In some areas (hello Southern California!) – that still hasn’t happened by a long-shot. What’s worse is that house prices must actually fall below 4.25 to account for the strains of excess inventory, lower wealth, lower incomes, and higher unemployment.

    I don’t understand how some people can maintain that higher purchase to household income ratios are possible. I’m not a rabid bear, but I expect index scores in most areas top drop to 130 or less eventually.

  9. 9
    Sniggy says:

    By Indy @ 1:

    Seattle tiers still seem fairly similar in terms of overall performance. But compare Phoenix seasonally adjusted tiered changes from peak!

    High Tier: 224.37 to 117.97 = -47.5% from peak
    Mid Tier: 224.13 to 101.41 = -54.8% from peak
    Low Tier: 238.44 to 70.56 = -70.4% from peak!!! (and -69% from May 2007!!!)

    Now, when a third of your homes are nearly 70 PERCENT DOWN in only two years, and are selling at a rate not seen since 1995 (and forget about inflation), you may indeed be near the bottom, but what a total disaster!

    Some of those market experienced a 30% YOY increase, which Seattle never did.

    I am not really sure why you’d want to compare the two.

  10. 10
    pfft says:

    is it me or does it look like prices nudged up slightly last year around this time too? what happened AFTER that?

  11. 11
    Kary L. Krismer says:

    By pfft @ 10:

    is it me or does it look like prices nudged up slightly last year around this time too? what happened AFTER that?

    Paulson announced the near collapse of the economy. Have you forgotten? ;-)

    Returning to my Vonnegut theme of time-travel, if two years ago someone from today had come to this board and told everyone that Freddie and Fannie would be under government control, Countrywide, WAMU, Chrysler and GM have failed, and that the Fed couldn’t reduce it’s rates any more, what do you think the poll results would have been for the price declines today?

  12. 12
    The Tim says:

    RE: Kary L. Krismer @ 11 – Kary that smells suspiciously like a straw man to me. Point out one time anyone here has called for incredibly rapid price drops (i.e. – in the span of 2 years). The people here who are calling for very large price declines have always predicted that they would occur over a drawn out period, not just a year or two.

  13. 13
    Ben says:

    RE: Plymster @ 4

    What I meant was the price bands for the tiers changes each month. This means that the graph is sort of a second order graph, and that makes it hard for me to get a clean picture of what it is showing me.

    For example, what would the graph look like if sales volume for really expensive houses went down a lot (like it is right now)? Well, the price point for the high tier would go down. But maybe prices are holding steady?

    The normal CS graph of relative prices is fantastic because it tells me that on average, a house now is selling for x% less than it did some time ago. It is very easy to use the information.

  14. 14
    Indy says:

    RE: Sniggy @ 9 – I could have said “contrast”, I suppose. The point is that in the NW, the behavior of each tier has behaved fairly similarly – look at those graphs and you’ll see that the divergence of the “low-tier” is fairly small, but this is clearly not true in some cities. Phoenix stands out as a disaster. Cleveland and Detroit aren’t even included in the data anymore because there is too much distress in the data – and some “low-end” houses are literally going for nothing as entire neighborhoods implode.

    The question is “why the divergence”? and the economic answer is that housing supply curves are “sticky” – that is, while the tiered demand curves shift dramatically left almost immediately in a crisis – the supply curves adjust only gradually. This “stickiness” is proportional to cost (an effect that is exacerbated by forced-quantity events like foreclosures) and so, on the way to a new equilibrium, low-end sale-counts and prices will adjust long before the high-end. The same theory works on the way up too – which is why the low-end goes up faster too in bubble-times. And the worse the bubble (and the worse the pop) – the greater the divergence.

    You can use the Cash-Shiller index, sales data, and CPI data to make a classic economics style scatter-graph of inflation-adjusted price vs. quantity sold for the last 15 years for each tier in any city, and you could then see how this sticky-effect works. Low-end houses crash quickly (down and to the left with few sales, then down and to the right as sales return, but at a much lower price) – while high-end prices tend to hold out and hover for an extended period (with the quantity sold dropping significantly) before seller’s expectations start to gradually adjust.

    In this light – I actually see the Seattle data as encouraging. The similarity of the tiers (until now) tends to indicate less of a severe bubble, which should mean less of a severe contraction. On the other hand – low end homes are still far too expensive for the wages that the low-end earners will be receiving in the next few years – and that is why I expect further declines.

    In particular, I think the September-to-February period will see Seattle prices decline at least another 10%, and maybe much more, which means that most people buying soon with 10% down will go underwater in as little as 6 months – not a happy thought!

    Wait and rent folks – especially you first-time homeowners – you’ve got nothing to lose by giving yourself more time to gather more information and everything to lose by jumping in too early.

  15. 15
    uʍop ǝpısdn says:

    In particular, I think the September-to-February period will see Seattle prices decline at least another 10%, and maybe much more, which means that most people buying soon with 10% down will go underwater in as little as 6 months – not a happy thought!

    I think September, October and November sales will be good. $8000 deal expires in November and it’s a good bonus for first time home buyers.

    Wait and rent folks – especially you first-time homeowners – you’ve got nothing to lose by giving yourself more time to gather more information and everything to lose by jumping in too early.

    What if the interest rate goes (and most likely will) up?
    Monthly payments for a $350000 house (with 20% down) @5.25% will be the same as payments for a $320000 house (with 20% down) @6.00%
    Do you think an average seller in Seattle area will reduce the price from 350K to 320K in three short months? I really doubt it. Maybe $10K but not $30. But I think it’s very likely the interest rate will go to 6% or higher.

    If you wait, you’ll definitely might get a better price for the house but also you might get a crappy interest rate. Your monthly payment might be higher if you wait instead of buying today.
    The inflation is coming and the interest rate WILL go up.
    Just my $0.02.

  16. 16
    Alan says:

    Do you think an average seller in Seattle area will reduce the price from 350K to 320K in three short months?

    The sellers that actually sell their houses will. The ones that don’t will sit on the market.

  17. 17
    Alan says:

    Returning to my Vonnegut theme of time-travel, if two years ago someone from today had come to this board and told everyone that Freddie and Fannie would be under government control, Countrywide, WAMU, Chrysler and GM have failed, and that the Fed couldn’t reduce it’s rates any more, what do you think the poll results would have been for the price declines today?

    I think a bunch of people would say that we renters better be careful what we wish for because if things get that bad then buying a house will be the least of our problems.

  18. 18
    sid says:

    By Alan @ 17:

    Returning to my Vonnegut theme of time-travel, if two years ago someone from today had come to this board and told everyone that Freddie and Fannie would be under government control, Countrywide, WAMU, Chrysler and GM have failed, and that the Fed couldn�t reduce it�s rates any more, what do you think the poll results would have been for the price declines today?

    I think a bunch of people would say that we renters better be careful what we wish for because if things get that bad then buying a house will be the least of our problems.

    Dont worry. Things wont get that bad. In fact there are more and more people expecting a V shaped recovery — http://www.ft.com/cms/s/0/3c4c37ba-7c51-11de-a7bf-00144feabdc0.html . Too many people holding doom and gloom views. Its time to take a contrarian position and not follow the crowd.

  19. 19
    uʍop ǝpısdn says:

    sid,

    Too many people holding doom and gloom views. Its time to take a contrarian position and not follow the crowd.

    I agree with you.
    Most buyers know that the housing market is really bad and afraid to “catch a falling knife”. Isn’t it perfect time to get out and get what you want while the sellers are soft? Do you think the inventory and price will be the same when everyone thinks we hit the bottom? Doubt it.

  20. 20
    Kary L. Krismer says:

    By The Tim @ 12:

    RE: Kary L. Krismer @ 11 – Kary that smells suspiciously like a straw man to me. Point out one time anyone here has called for incredibly rapid price drops (i.e. – in the span of 2 years). The people here who are calling for very large price declines have always predicted that they would occur over a drawn out period, not just a year or two.

    That’s true some people said that. My point was we’ve gone through some really bad things, but do note the government mitigated the damages. F&F are continuing to operate, WAMU is no Chase, etc.

  21. 21
    Kary L. Krismer says:

    By Alan @ 17:

    Returning to my Vonnegut theme of time-travel, if two years ago someone from today had come to this board and told everyone that Freddie and Fannie would be under government control, Countrywide, WAMU, Chrysler and GM have failed, and that the Fed couldn�t reduce it�s rates any more, what do you think the poll results would have been for the price declines today?

    I think a bunch of people would say that we renters better be careful what we wish for because if things get that bad then buying a house will be the least of our problems.

    LOL. Imagine if it were even worse!

    It reminds me of the California energy crisis, where people didn’t want to pay for their electricity at even cost. They ended up added to their income tax bill and losing employment. I bet a lot of them would have been better off paying $10 a month.

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