Case-Shiller Tiers: Low Tier Plummets Past 30% Off Peak

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: < $262,889 (down 0.1%)
  • Mid Tier: $262,889 – $405,354
  • Hi Tier: > $405,354 (up 0.2%)

First up is the straight graph of the index from January 2000 through September 2010.

Case-Shiller Tiered Index - Seattle

Here’s a zoom-in, showing just the last year:

Case-Shiller Tiered Index - Seattle

The low tier has now given up a total of 5% in just the last three months since the tax credit expired, falling to a new post-peak low in September. 5% of a $250,000 home is $12,500—over 50% larger than the amount of the tax credit. In other words, if you rushed to buy so you could get your free money from the government, you got suckered.

All three tiers fell again in September, but not all declines are made equal. The low tier dropped 2.5% MOM, the middle tier fell 1.1%, and the high tier lost less than 0.1%.

Here’s a chart of the year-over-year change in the index from January 2003 through September 2010.

Case-Shiller HPI - YOY Change in Seattle Tiers

The low tier and middle tier increased their YOY losses, while the high tier marked a slight improvement. Here’s where the tiers sit YOY as of September – Low: -7.2%, Med: -4.6%, Hi: -0.8%.

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

Current standing is 30.6% off peak for the low tier, 25.8% off peak for the middle tier, and 22.7% off peak for the high tier.

(Home Price Indices, Standard & Poor’s, 11.30.2010)

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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.

29 comments:

  1. 1
    David S says:

    Good news and a feel good story for someone who sold low mid tier property in January 2010.

    I didn’t make the predictions, I just went all in and liquidated in anticipation of what is now happening. Yes this is the sounding of my own horn but many others also play in the band here.

    I found Seattle Bubble after that transaction but had been correlating data on my own ahead of time fortunately.

    Now if we could just find another house sometime in the Spring it will work out so well.

    Seattle Bubble is an asset for summarization of data. Thanks be to The Tim.

  2. 2
    LA Relo says:

    Remember when MSM used to look at the median sale price? Or if they really wanted to be technical, price per square foot?

    Bye bye bubble days. Hello reality.

  3. 3

    RE: David S @ 1

    Even Better Idea

    If you can swing it. Live debt free in housing and forget the ebbs and flow dealing with mortgage giants at the whims of federal deficit butcher axing [Freddie/Fannie] making selling or buying near impossible at today’s Seattle prices.

    Just trade titles with another debt free family for their home’s title. Perhaps add some cash to the trade, if they’re appraised slightly different….good-bye usury mortgage rates when they make savers eat cake [0% safe savings rates] as they freeze federal [private salaries too] and Social Security pay because of the out of control deficit spending. Good-bye to overly tight loan qualifications with a high unemployment that has no end with uncontrolled growth.

    Sure…..my method will kill sales [lol, they’re already killed under a 1000 anyway], but do real estate pundits plan your retirement? Or is it, “what retirement”? LOL

  4. 4
    HappyRenter says:

    A close relative has recently told me that I should buy a house and put down no more than 20%, even if I could afford to put down much more. Inflation will do the rest, he told me, the house will increase in value and the debt will appear smaller and smaller. And then there is the mortgage interest deduction.

    I’m skeptic. I’m gonna rent for a while – and next spring I will enjoy visiting open houses with no pressure that I have to find the dream home and laughing at agents who tell me “still throwing money out of the window by renting?”.

  5. 5

    RE: HappyRenter @ 4 – If there are increased future values, then putting down less is better if you’re looking at rate of return. That’s basically what multi-family investors were betting on in 2000-2007. And yes, if there is inflation, owing money is better than having money.

    The problem is, you can’t know what the future will hold. You don’t know that prices will increase between the time you buy and want to sell, and you don’t know that there will be significant inflation.

  6. 6
    Sleepwalker says:

    By HappyRenter @ 4:

    A close relative has recently told me that I should buy a house and put down no more than 20%, even if I could afford to put down much more. Inflation will do the rest, he told me, the house will increase in value and the debt will appear smaller and smaller. And then there is the mortgage interest deduction.

    I’m skeptic. I’m gonna rent for a while – and next spring I will enjoy visiting open houses with no pressure that I have to find the dream home and laughing at agents who tell me “still throwing money out of the window by renting?”.

    That advice is the same as “buy as much Apple stock as you can afford because it only goes up up up.”

  7. 7
    HappyRenter says:

    By Kary L. Krismer @ 5:

    RE: HappyRenter @ 4
    The problem is, you can’t know what the future will hold. You don’t know that prices will increase between the time you buy and want to sell, and you don’t know that there will be significant inflation.

    Now, assume the situation that I will never sell that house. Also, it’s not clear whether my wage will go up with inflation. It’s been frozen since two years.

  8. 8

    RE: HappyRenter @ 7 – Those assumptions could call for more to be put down, because that would reduce your monthly payment. Alternatively you could go for a shorter loan.

    But if you’re never going to sell the house it really becomes a game of locking in your payments versus waiting for rents and/or prices to drop.

  9. 9
    Scotsman says:

    RE: Kary L. Krismer @ 8

    Hmmmm- are you now a licensed financial advisor, or is this new helpfulness part of the realtor’s job?

  10. 10

    RE: Scotsman @ 9 – I don’t think you need to be a licensed financial advisor to point out errors in the relative’s analysis, which was based on an assumption of rising prices. In the second post HR made it clear that future appreciation isn’t a factor, but that’s what the relative’s opinion was based on.

  11. 11
    HappyRenter says:

    By Kary L. Krismer @ 8:

    RE: HappyRenter @ 7
    But if you’re never going to sell the house it really becomes a game of locking in your payments versus waiting for rents and/or prices to drop.

    What do you mean “locking in your payments”? Isn’t it better to wait for prices to drop and buy at a lower price?

  12. 12

    By HappyRenter @ 11:

    By Kary L. Krismer @ 8:

    RE: HappyRenter @ 7
    But if you’re never going to sell the house it really becomes a game of locking in your payments versus waiting for rents and/or prices to drop.

    What do you mean “locking in your payments”? Isn’t it better to wait for prices to drop and buy at a lower price?

    Well that’s just the opposite assumption as to what your relative had, but yes if you think prices will drop then waiting would be the strategy. But just as I said your relative wouldn’t know for certain prices would rise, you would not know for certain prices would drop. That’s the problem with strategies based on single assumptions.

    Just to connect up the second half of the analysis though, if you expect general deflation, then cash would be good and debt bad.

  13. 13
    Sleepwalker says:

    By Kary L. Krismer @ 12:

    By HappyRenter @ 11:

    By Kary L. Krismer @ 8:

    RE: HappyRenter @ 7
    But if you’re never going to sell the house it really becomes a game of locking in your payments versus waiting for rents and/or prices to drop.

    What do you mean “locking in your payments”? Isn’t it better to wait for prices to drop and buy at a lower price?

    Well that’s just the opposite assumption as to what your relative had, but yes if you think prices will drop then waiting would be the strategy. But just as I said your relative wouldn’t know for certain prices would rise, you would not know for certain prices would drop. That’s the problem with strategies based on single assumptions.

    Just to connect up the second half of the analysis though, if you expect general deflation, then cash would be good and debt bad.

    The logical errors(not Kary) here are hilarious.

    If you *know* prices are going to drop. Then Jesus Christ!, Don’t “lock in” a payment unless you’re comfortable losing money/equity in order to obtain that quality of life buying a house right now will give you.

    Conversely, if you *know* prices are going to go up, may as well get an interest only loan and happily take your deduction knowing your down payment is being built by the moment.

    Face it folks, we don’t know which way the housing market is going to go. I think it’s going down, but that doesn’t mean I know it’s going down. What would happen if the gov doubles the mortgage interest deduction? More buyers credits? Cash for clunker houses?

  14. 14

    RE: HappyRenter @ 4
    Your relative’s theory can be argued two ways:
    1. if prices go down and you’ve only put down 3.5%, when you go to sell you’re not out as much ” real money.” If the house cost 400,000, you’ve put down 14,000,and the closing costs are rolled into the loan, but you can sell it a couple of years later for only 350 and you have no other assets, maybe you could do a short sale or mail the keys back and you’re not out that much money. But if you’ve put down 25% on a 400,000 dollar house and you need to sell it in a couple of years for 350, and didn’t borrow closing costs, it’ll be something like 110,000 down payment and closing costs to buy, and returning 350 minus about 32 for commissions, closing costs, excise tax, etc, that leaves you with 110 invested, returning maybe 20 thousand? That’s a loss of what, 82%?
    2. But cash talks. A seller is more likely to accept a lower offer if there’s lots of cash involved. And it’s one less thing to worry about. And lower payments are a good thing.
    But if it’s a choice between maintaining a high interest credit card bill simply in order to have a higher down payment? Bad choice. Keep renting.
    I am not a licensed financial advisor. That’s never stopped me from dispensing advice on all kinds of subjects I have absolutely no qualifications to dispense advice on.
    Personally, I hate banks, and given the choice, would make as large a down payment as possible and pay off the mortgage as early as possible. That’s more emotional advice than sound financial advice.

  15. 15

    RE: Sleepwalker @ 13 – I think one problem was that Happy Renter and his/her relative may have different views of the future and clearly they have different “investment timeframes.” Either one means the relative’s advice isn’t really something HR should follow.

  16. 16
    HappyRenter says:

    RE: Ira Sacharoff @ 14
    “But if it’s a choice between maintaining a high interest credit card bill simply in order to have a higher down payment?”

    Definetely not. I have no high interest credit card bill. I would put down the cash that I have saved until now.

  17. 17
    LA Relo says:

    By Kary L. Krismer:

    RE: And yes, if there is inflation, owing money is better than having money.

    So then why is our gov’t so concerned about deflation???

    Oh wait ;)

  18. 18
    HappyRenter says:

    RE: Ira Sacharoff @ 14
    “2. But cash talks. A seller is more likely to accept a lower offer if there’s lots of cash involved.”

    Why is that, Ira?

  19. 19
    Macro Investor says:

    RE: Ira Sacharoff @ 14

    “1. if prices go down and you’ve only put down 3.5%, when you go to sell you’re not out as much ” real money.”

    Finally some good advice! If the market tanks for a few more years you only lose 3.5%, so you win. Or if the market goes up, you win that way. Either way don’t screw it up by refinancing (or getting a second) until you have lots of equity — those loans have recourse.

    The market will most likely tank for many many years. Near term because of all the distressed sellers. Later because interest rates will go up and baby boomers will retire and downsize. This is the long haul.

  20. 20

    By HappyRenter @ 18:

    RE: Ira Sacharoff @ 14
    “2. But cash talks. A seller is more likely to accept a lower offer if thereâ��s lots of cash involved.”

    Why is that, Ira?

    Because a buyer with more cash looks more solid, more credible, more serious.
    I was the unsuccessful buyer’s agent on a deal about a year ago where the list price was 549( huge Greenwood craftsman fixer on a double lot), my buyers offered 507 with 20% down, and it was turned down in favor of a 475 thousand dollar all cash offer, but with a feasibility contingency based on the cost of developing the attached vacant lot. Turned out the cost was prohibitive, and the listing agent calls back telling me the sellers are now ready to accept my client’s offer. But it was too late and they’d found something much more to their liking. Cash talks, but a cash offer with no contingencies screams.

  21. 21
    HappyRenter says:

    By Macro Investor @ 19:

    RE: Ira Sacharoff @ 14

    The market will most likely tank for many many years. Near term because of all the distressed sellers. Later because interest rates will go up and baby boomers will retire and downsize. This is the long haul.

    Under this perspective, it’s more sound to keep renting, until you can afford it to buy with just cash. Then, you will have -your- home, no debt, no mortgage and you are the boss of your house.

  22. 22
    Jonness says:

    “The low tier has now given up a total of 5% in just the last three months”

    Yawn. It’s correcting at the rate of 20% per year.

    “2.5% MOM”

    OK. Now we are getting somewhere, a 30% annual correction rate! Where’s pffft when you need him?

    Where is pffft when you need him?

  23. 23
    Jonness says:

    By Kary L. Krismer @ 12:

    But just as I said your relative wouldn’t know for certain prices would rise, you would not know for certain prices would drop.

    They could always ask me, and I would tell them which direction prices would trend in the future. That way, there would be no guesswork about which strategy would be best.

    OK, let’s skip the asking step. The overall trend is the same as I’ve been saying for the last 3 years, down.

  24. 24
    Jonness says:

    By HappyRenter @ 16:

    I would put down the cash that I have saved until now.

    So let me get this straight. At a time when the government support just ended, and prices reestablished their downward correction at the rate of 30% per year, you are going to put 20% cash down on a house? Sounds like a plan. We’ll talk again a year from now. :)

  25. 25

    By Jonness @ 23:

    By Kary L. Krismer @ 12:

    But just as I said your relative wouldn’t know for certain prices would rise, you would not know for certain prices would drop.

    They could always ask me, and I would tell them which direction prices would trend in the future. That way, there would be no guesswork about which strategy would be best.

    OK, let’s skip the asking step. The overall trend is the same as I’ve been saying for the last 3 years, down.

    The only problem is you’ve probably been saying that for seven years! ;-)

    Oh, then there’s the other problem. Just having been right for the past three years doen’t mean you’ll be right in the future.

    But other than those two things, great idea! :-D

  26. 26
    Jonness says:

    By Kary L. Krismer @ 25:

    The only problem is you’ve probably been saying that for seven years! ;-)

    Actually, I’ve managed my money extremely well these past seven years. OTOH, all the fools who sold out in 2003 are starting to look smarter and smarter as time goes on. Prices are certainly below that level in many parts of the country, and I continue to see REO’s and short sales in the Puget Sound are listed at that price and below.

    Oh, then there’s the other problem. Just having been right for the past three years doen’t mean you’ll be right in the future.

    The big piece of the puzzle you are missing is probability theory and its proper application to the subject matter.

    The overall trend for Puget Sound house prices is down.

  27. 27
    Jonness says:

    Just for fun:

    http://mrzine.monthlyreview.org/2010/baker301110.html

    “The sharp decline in house prices in the bottom tier since the expiration of the first-time buyers tax credit means that the loss of home equity for many recent buyers will have exceeded the value of the credit. In such cases the credit effectively went to the seller, or in the case of underwater mortgages, to the bank that held the mortgage.

    For one more interesting data point, the Census Bureau released data on new home sales prices for October last Wednesday. This release reflects much more up-to-date data since it is based on contract prices. The Case-Shiller index is a 3-month average that is based on closings, which typically occur 6-8 weeks after a contract is signed. The report showed that the price of a median home fell 13.6 percent in October hitting its lowest nominal level in 7 years.”

  28. 28
    HappyRenter says:

    By Jonness @ 24:

    By HappyRenter @ 16:

    I would put down the cash that I have saved until now.

    So let me get this straight. At a time when the government support just ended, and prices reestablished their downward correction at the rate of 30% per year, you are going to put 20% cash down on a house? Sounds like a plan. We’ll talk again a year from now. :)

    No, not now! Of course not. Do you think that I have not been reading Tim’s posts? This is a hypothetical situation which will happen in 1-2 years, assuming that prices will have stabilized by then. Basically, I am trying to time the bottom. I know it’s hard, but it might be fun. I’m sure there are indicators to look at, like unemployment rate, the economy standing on its own feet without government intervention, etc.

  29. 29

    By Jonness @ 26:

    By Kary L. Krismer @ 25:

    The only problem is you’ve probably been saying that for seven years! ;-)

    Actually, I’ve managed my money extremely well these past seven years. OTOH, all the fools who sold out in 2003 are starting to look smarter and smarter as time goes on. Prices are certainly below that level in many parts of the country, and I continue to see REO’s and short sales in the Puget Sound are listed at that price and below.

    Oh, then there’s the other problem. Just having been right for the past three years doen’t mean you’ll be right in the future.

    The big piece of the puzzle you are missing is probability theory and its proper application to the subject matter.

    The overall trend for Puget Sound house prices is down.

    Wow, a claim by an anonymous poster that they’ve done well over the past 7 years. That and $5 will buy you a grande latte at Starbucks. But thanks for admitting you were bearish well before the downturn.

    It’s curious though that you were. Since your current position is based on the past three year trend, you should have been bullish before since prior to 2007 there was a 20 year trend up.

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