Case-Shiller Tiers: Low Tier Still Getting Walloped

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: < $245,380 (down 2.4%)
  • Mid Tier: $245,380 – $386,386
  • Hi Tier: > $386,386 (down 2.1%)

First up is the straight graph of the index from January 2000 through January 2011.

Case-Shiller Tiered Index - Seattle

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

Case-Shiller Tiered Index - Seattle

All three tiers continue to mark new post-peak lows. The low tier has “rewound” to March 2004, the middle tier is back to August 2004, and the high tier is at November 2004 pricing.

Flipping back to the pattern we’re fairly familiar with, the low tier lost the most ground in January. The low tier dropped 3.3%, the middle tier fell 1.9%, and the high tier lost 2.2%.

Here’s a chart of the year-over-year change in the index from January 2003 through January 2011.

Case-Shiller HPI - YOY Change in Seattle Tiers

All three tiers continued to increase their rate of decline in January. Here’s where the tiers sit YOY as of January – Low: -11.6%, Med: -8.7%, Hi: -4.8%.

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

New lows for everybody. Current standing is 35.5% off peak for the low tier, 30.2% off peak for the middle tier, and 28.0% off peak for the high tier.

(Home Price Indices, Standard & Poor’s, 03.29.2011)

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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.

39 comments:

  1. 1
    bob says:

    Thanks all for great discussion.

    So combining data from the previous post’s comments: King Co household median is a little less than $70k/year. Using (4x multiplier = $280K instead of the 3x I had been taught to use) and the mid tier in the post above above (Mid Tier: $245,380 – $386,386). So very roughly, it might be that median housing prices might fall another 10-15% but we are getting reasonably close.

    If a 5x multiplier, we are there — assuming that folks have the $70K down payment at 20%.

    Thoughts – or is this wildly simplistic.

  2. 2
    Kary L. Krismer says:

    I know people like to pretend C-S is not affected by a changing mix, like the NWMLS median is, but I think that is pure fantasy. Absent C-S somehow totally excluding REOs and short sales, there’s no way they are not affected by the mix.

    I just ran some numbers of Nov-Jan sales for King, Pierce and Snohomish counties, so the data is for the same time periods and area was this C-S data. For their lower tier, distressed properties made up 57% of the sales, for the mid-tier, 28% and for the upper tier, only 16%. Thus, the tiers with larger percentages of distressed sales showed the higher drops in value.

    Numbers from NWMLS sources but not compiled by or guaranteed by the NWMLS.

  3. 3
    Pegasus says:

    What we are observing is the fact that lower income individuals have been the most impacted by the economic crisis. Unemployment rates increase rapidly the lower one goes on the income scale. Obviously this has spilled over into the lower tier homes with the most impact creating more distressed homes and more buyers unable to buy due to tighter requirements. Obviously the more homes that have to be forced sold impacts pricing. A big duh on coming to that conclusion.

  4. 4
    Kary L. Krismer says:

    By Pegasus @ 3:

    What we are observing is the fact that lower income individuals have been the most impacted by the economic crisis.

    Beyond that, the lower end houses were the ones more likely to be the target of flippers, driving up their price. I believe during 2006-2007 houses in the Skyway area were going up in value at faster rates than other areas. So in a sense, they are just unwinding in the way they wound up–faster.

    Also, lower income people are more likely to not be able to adequately maintain the house they do buy. In the last 60 days I’ve come across two REO houses where something went wrong with the furnace and the owner installed electric wall heaters because they couldn’t afford to replace the forced air furnace. Earlier I came across a listing where the prior owner had removed the boiler heat system and been foreclosed prior to installing any heat (although that might possibly have been a case of a vindictive owner–it wasn’t clear.)

  5. 5
    One Eyed Man says:

    RE: Pegasus @ 3 – From one of my favorite blues songs:

    “Them that’s got shall get
    Them that’s not shall lose
    So the Bible said and it still is news”

    Billie Holiday / Arthur Herzog Jr.

    More lyrics: http://www.lyricsfreak.com/b/billie+holiday/#share

  6. 6
    Blurtman says:

    RE: One Eyed Man @ 5 – “The rich get richer, and the poor get the picture.” – Jesse Jackson, somehwere in the 1960’s and onward.

  7. 7
    Shoe Guy says:

    Woa woa woa. Do you mean to tell me that median prices in Seattle need to align with median incomes just like they are doing around the rest of the country?

    I thought we lived in a magic vortex where money in Seattle goes farther than it does everywhere else in the country because of the healing beauty of Mt. Rainier in the summer time! Why isn’t this front page news???

  8. 8

    Kary is Right

    Pragmatic examination of the numbers show a lion’s share of the sales flocking to the bargain homes.

    Bob, your household income numbers at $70k/household in Seattle are a COMPLETE joke IMO in today’s recession/foreclosure economy in the Seattle area. Article in part:

    “…The weak economy — which has brought surging foreclosures, sinking property values, vanishing home equity and mounting job losses — is playing a major role in family dynamics, pulling relatives under the same roof to pool their resources and aid relatives who’ve lost their homes.

    Siblings are moving in with one another to help pay the mortgage. Adult children who’ve lost homes to foreclosure are moving back home with Mom and Dad. Even spouses in the throes of divorce are putting off separating, living together in awkward cold wars because they can’t sell their houses.

    That’s in large part because those losing homes often have nowhere else to go. Many live paycheck to paycheck: Nearly 61% of local and state homeless coalitions are seeing an increase in homelessness since the foreclosure crisis began in 2007, according to an April 2008 study by the National Coalition for the Homeless. Only 5% said they hadn’t seen an increase. The survey found that more than 76% of homeowners and renters who must move because of foreclosures are staying with family and friends….”

    http://www.usatoday.com/money/economy/housing/2009-02-02-housing-crisis-families-living-together_N.htm

    I know today of a small 3 bdrm house a mile from mine, with mom and pop, their single/divorced middle aged daughter with four young kids and a homeless unpaid middle aged friend living there too…..the house is about 1100 SF in size….I’m sure you bubbleheads know of many cases like this too. Sometimes the lower paid undocumented workers get an apartment and later you notice 5-10 kids in the yard, etc, etc…

    Persons per household tracking by the Census Bureau apparently isn’t available for 2010, it is available for 2000 [2.5]….I’d love to see a recent comparison from government sources [I’m waiting….LOL]

    Check out the American per capita wage degradation charts [which avg in MASSIVE wage increases to CEOs and such], article in part:

    “….David Cay Johnston, the well known tax journalist, found some scary wage data.

    Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.

    The below graph shows the average wage per bracket and the percentage of wage earners in that bracket….”

    http://www.economicpopulist.org/content/wages-america-most-us-are-have-nots

    Bear in mind too Bob, that the rosy $70K/yr per household number you use averages in the MASSIVE Wash St Bill Gates type wealth increases [that most of us “have not home buyers” never see], etc….it doesn’t exclude them…..it also doesn’t tell us diddly how a CLEARLY shrinking Seattle total labor force [with concurrent population density increases] TOTALLY impacts or skews that $70K/Yr figure you and the government use too.

    The old rule: Staticians are the best liars….

  9. 9
    Daniel says:

    RE: Kary L. Krismer @ 2
    I think all you say here is correct. However just looking at the high tier, which dropped roughly 5% from a year ago but has only 16% distressed sales, it is pretty clear that distressed sales alone do not account for the drop.

    Is there a way you can calculate how much cheaper the average distressed high tier sale was, compared to non-distressed high tier? (regular average not median)

  10. 10
    bob says:

    mr softwareengineer.

    the ~70K is the median for king co (albeit a projection) listed at http://www.ofm.wa.gov/economy/hhinc/medinc.pdf. I don’t doubt that things are worse than projection, but wanted to get a rule of thumb – not much more.

    The question that can’t be answered is when do people start getting

  11. 11

    In terms of home price to rent ratios, buying a low tier home in the Seattle area makes much more sense than buying a more expensive home. A two bedroom dump in Skyway will currently cost about 180,000. After a 20% down payment and taxes and insurance, the payments will be about 950 per month. The rent would be about 1000. Not exactly positive cash flow after taking into account maintenance, repairs, and the down payment, but the depreciation allowance in taxes helps.
    But then, even if it is slightly cash positive or cash flow neutral, you’re still left being the landlord of a two bedroom dump in Skyway. You might get good tenants, but you also may end up with a meth manufacturer or crackhead or…
    Still, it’s a lot better than buying a million dollar home that you can only rent out for 3000.

  12. 12
    Kary L. Krismer says:

    RE: Daniel @ 9 – I would agree the differences are not all due to that one factor. I was just trying to point out how that factor seemingly has an effect. I also mentioned lack of ability to repair in the lower end, but I don’t think that factor and distressed cause all the differences in that tier.

    As to your question, the differences are not as significant as you would expect. I’m getting 639k non-distressed, 628k short sale and $619 REO. Note though I’ve done nothing at all to account for differences in the properties.

    Numbers from NWMLS sources, but not compiled or guaranteed by the NWMLS.

  13. 13
    Kary L. Krismer says:

    RE: Ira Sacharoff @ 11 – I’d also point out that unlike buying for a personal residence, all the interest paid would be deductible.

  14. 14

    RE: Kary L. Krismer @ 13

    Christians 1, Lions 0

    Article in part:

    “…Representatives voted Tuesday to terminate the Obama administration’s signature anti-foreclosure effort, the beleaguered Home Affordable Modification Program. The 252-170 vote broke down mostly along party lines, with Republicans in favor of ending the program….”

    http://www.huffingtonpost.com/2011/03/29/hamp-termination-act-house-vote_n_842150.html

    Our Wash St Rep is horrified too, from above article:

    “…”It makes no sense to say to 500,000 people, ‘We want you to be homeless. Good luck, you’re on your own.” That’s basically what they’re saying,” Rep. Jim McDermott (D-Wash.) said, although in fact, the bill would not end the program for homeowners who are already in modifications.

    McDermott has emerged as a HAMP defender in recent weeks. “You got to get the servicers to play better with the program,” he said. “They simply don’t want to do it.”…”

    This is just the beginning Kary IMO, the budget cuts to prevent an imminent government shutdown cannot continue to bow to the real estate Cow God anymore…the Tea Party, as unorganised and powerless as it may seem to be, seems to be running the show and until they’re happy for compromise, even the real estate tax deduction is on the chopping block IMO….nothing or no one is immune this time.

  15. 15
    Kary L. Krismer says:

    RE: softwarengineer @ 14 – There’s still my solution of allowing the so-called “cramdown” in Chapter 13. That wouldn’t cost the government much at all.

  16. 16
    Blurtman says:

    RE: softwarengineer @ 14 “…”It makes no sense to say to 500,000 people, ‘We want you to be homeless. Good luck, you’re on your own.” That’s basically what they’re saying,” Rep. Jim McDermott (D-Wash.) said,…”

    Why is the opposite of owning a home “homelessness?” What about renting? You can rent a home, can’t you? And if you cannot afford to do that, than you cannot afford a mortgage payment. McDermott, as quoted here, sounds like clueless boob.

  17. 17
    bob says:

    have you guys seen this? New misery index from the WSJ …

    http://graphicsweb.wsj.com/documents/DJFX/pu.php?graphic=MISERY20110329
    http://blogs.wsj.com/economics/2011/03/29/where-are-americans-most-miserable/

    At least, using this metric, we are ahead of Portland and Pheonix

  18. 18
    Kary L. Krismer says:

    By Blurtman @ 16

    McDermott, as quoted here, sounds like clueless boob.

    So in other words, it’s accurate. ;-)

  19. 19
    Updog says:

    RE: bob @ 17

    What a silly metric, I like the old 1980’s model better. Falling house prices == celebration!!!

  20. 20
    whatsmyname says:

    By bob @ 17:

    have you guys seen this? New misery index from the WSJ …

    http://graphicsweb.wsj.com/documents/DJFX/pu.php?graphic=MISERY20110329
    http://blogs.wsj.com/economics/2011/03/29/where-are-americans-most-miserable/

    At least, using this metric, we are ahead of Portland and Pheonix

    Here is a response from the original site. I couldn’t improve on it.

    “HB wrote:
    Fatuous twaddle -when you consider the absurd notion that misery in Portland could be at all comparable, nay supposedly even worse than that of Detroit.

    Waste of news space. Murdoch at his best.”

  21. 21
    Pegasus says:

    By bob @ 17:

    have you guys seen this? New misery index from the WSJ …http://graphicsweb.wsj.com/documents/DJFX/pu.php?graphic=MISERY20110329
    http://blogs.wsj.com/economics/2011/03/29/where-are-americans-most-miserable/At least, using this metric, we are ahead of Portland and Pheonix

    Portland and Seattle rank low on the misery index only because of the SAD syndrome(seasonal affective disorder) that afflicts us here in the rainy Northwest during the winter months. Not to worry everything will return to being peachy keen once summer hits. That’s when the pink pony parade is held when they migrate back from sunny climates.

  22. 22

    RE: bob @ 17

    Great Chart Bob

    WOW, Seattle is doing horribly at the bottom of the list….that must mean we’re just about to hit bottom and the light is at the end of the tunnel [to quote Kary, LOL]….oooops, I really meant the freight train light is coming to smash us, I hear it’s engine….LOL

  23. 23
    Scotsman says:

    Whoa! Stop the presses! The bottom is in!

    “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.

    —So let’s state it simply and forcibly: Housing is back.

    Two basic factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction that so amazes Castleman. The second is a steep decline in prices, on the order of 30% nationwide since 2006, and as much as 55% in the hardest-hit markets. The story of this downturn has been an astonishing flight from the traditional American approach of buying new houses to an embrace of renting. But the new affordability will gradually lure Americans back to buying homes. And the return of the homeowner will start raising prices in many markets this year.—”

    http://finance.fortune.cnn.com/2011/03/28/real-estate-its-time-to-buy-again/

  24. 24
    The Tim says:

    RE: Scotsman @ 23 – Ha! So we’ve got people calling for everything from another 30%-50% off to more or less flat, to a “dramatic recovery.”

    I still think another 30% off is highly unlikely, but I think a sudden “dramatic recovery” starting this year is even less likely.

    [edit]

    Hah! I did a little research on Shawn Tully, the writer calling for the “dramatic recovery” to begin later this year. Here’s what he was saying about real estate in 2002:

    “U.S. housing prices are stretching the outer limits of what’s reasonable and sustainable.” (source)

    “We’d be remiss if we didn’t point out that housing indicators have begun to shift. Home prices in coastal cities, from New York to San Francisco, are inflated. In the next few years they should either fall or stay flat.” (source)

    “With stocks in the tank, Americans are counting on home prices to keep rising. They won’t.” (source)

    So, let’s see… He was only about… 4 or 5 years early calling the top, so I guess we can expect a bottom sometime in 2015 or 2016?

  25. 25
    bob says:

    Oh come on – of course the WSJ is just having some morbid fun with the misery index. Everything but C-S is at the goofy-iness level in my opinion. BTW: has NAR corrected their data for the last few years now they have admitted to inflated data?

    Scotman @23. Perhaps Fortune has been (http://www.youtube.com/watch?v=oHg5SJYRHA0) RickRoll’d.

  26. 26
    Real World Express says:

    Why would anyone pay top dollar to live in the 3rd most “miserable city” ?

    I think even the posters on this board are deluded.

    You can now find cheaper houses in sunny CA for way less than here.

    The average home price … average for a new, nice home … is still tens of thousands CHEAPER than the average WORST home in Seattle….and it really does rain all the time.

    Couple that with political corruption, bad planning, low grade education…and for some strange reason, they’re selling Arkansas style living at Park Avenue prices!

  27. 27
    Alex says:

    By softwarengineer @ 14:

    RE:

    Christians 1, Lions 0

    What exactly do you mean? Who are the Christians? the Lions? What game are they playing & how does that relate to the Case-Shiller index?

    As far as your Tea Party & GOP, didn’t most of them sign the no-new taxes pledge? ( hint – only 7 didn’t sign *). They also state that eliminating tax breaks is equivalent to tax increases.

    It seems that in order to be logically consistent, stick to their principles, and to uphold their pledges, there is no way eliminating the real estate tax deduction can happen without some sort of income tax break aimed at mortgage holders. You know, some kind of real estate tax deduction.

    Of course, we all know how well educated, rational, principled and trustworthy the tea party and their luminaries are ;)

    *http://www.atr.org/userfiles/Congressional_pledge(1).pdf

  28. 28
    whatsmyname says:

    By bob @ 25:

    Oh come on – of course the WSJ is just having some morbid fun with the misery index. Everything but C-S is at the goofy-iness level in my opinion. BTW: has NAR corrected their data for the last few years now they have admitted to inflated data?

    I went back and reread the article. You are right. WSJ was just funnin’ us; they just didn’t know they was funnin’ us. I don’t know about the NAR; I don’t follow them. Maybe they are comedians too.

  29. 29
    Scotsman says:

    RE: The Tim @ 24

    In all seriousness there are a lot of lessons lurking in the quoted piece. If I were teaching economics we could spend an entire class dissecting the assumptions and errors. But the basic problem is you can’t explain or predict a 10 variable environment by only looking at 2 or 3 variables at a time.

    For example, suggesting that because new housing starts are lower than closings we will soon be facing a shortage sounds great until you add in the record high 13% vacancy rate for the country as a whole. A second is focusing on increasing affordability and sharply reduced prices. . . without mentioning the difficulty ever more people face of qualifying for financing. It’s not enough to just mention all the issues- you haver to pull them together into one big picture- the proverbial forest.

    One point does stand on it’s own though- there’s no arguing with this:”Of course, home prices are low and home construction is weak for a reason: incredibly low demand.”

  30. 30
    David Losh says:

    RE: Scotsman @ 29

    I agree that looking at simple correlations between the price of housing to CPI, or wages, or rents, or housing starts, or employment is meaningless.

    You have to look at a much broader picture of economic viability for holding an asset that is illiquid, has limited use, and low potential for profit.

  31. 31
    Macro Investor says:

    By bob @ 1:

    Thanks all for great discussion.

    So combining data from the previous post’s comments: King Co household median is a little less than $70k/year. Using (4x multiplier = $280K instead of the 3x I had been taught to use) and the mid tier in the post above above (Mid Tier: $245,380 â�� $386,386). So very roughly, it might be that median housing prices might fall another 10-15% but we are getting reasonably close.

    If a 5x multiplier, we are there — assuming that folks have the $70K down payment at 20%.

    Thoughts – or is this wildly simplistic.

    This is what I was talking about yesterday. The multiplier “in effect” is based on crowd behavior. When people are being conservative — both lenders and borrowers — the multiplier is low. Other times, people are wild-eyed irrational to get a house at any price. Lenders went along with it, because investors were wild eyed too and bought all the paper thrown at them.

    So, yes. IMO it is simplistic to pick a multiplier and project prices in the future.

  32. 32
    Macro Investor says:

    RE: David Losh @ 30

    Thank you David, Scotsman and many others for expanding on my overly wordy point from yesterday. There are perhaps dozens of variables. Each one has measurement error and built-in assumptions. When you combine them you multiply that and get conclusions that have a very wide margin of error. Add to that trying to predict human or crowd behavior.

    “Median income” is key to many fundamental analysis, and is one I particularly dislike. I’m pretty sure it excludes people who are unemployed. I wish I could post a chart here. Playing around at data.bls.gov, I can see that about the same number of people are working now and in 2000. For the local market, I would like to see the total number of people/families making various incomes. That determines demand for housing. If we just look at median income, we ignore the actual demand size.

    Even if we had a long-term chart of the number of people making the median income, now we have to filter that by credit score and remaining debt capacity. All this just to make a good approximation of “buyer demand”.

  33. 33
    David Losh says:

    RE: Macro Investor @ 31

    The ability to sell the Notes, the mortgages was a big factor in lender’s willingness to drive up property prices. Now that the mortgages are tainted investors are on to the next get rich quick scheme.

  34. 34
    corncob says:

    I have been considering moving back to California lately. More tech jobs, better weather, better food and now there are similarly priced homes. If Seattle prices continue to stay high and bay area prices continue to stay low I predict an exodus of tech workers, like me, as the economy recovers.

  35. 35
    Pegasus says:

    By corncob @ 34:

    I have been considering moving back to California lately. More tech jobs, better weather, better food and now there are similarly priced homes. If Seattle prices continue to stay high and bay area prices continue to stay low I predict an exodus of tech workers, like me, as the economy recovers.

    The great California to Washington migration is finally over! Decades in the running. Not to be rude but don’t let that door hit you in the @$$ on the way out. It was the Californians that helped drive the prices up in Washington. Selling the high priced homes in Ca. and buying at what appeared to be bargains in Wa. had an impact on pricing and life style here.

  36. 36
    Kary L. Krismer says:

    By corncob @ 34:

    I have been considering moving back to California lately. More tech jobs, better weather, better food and now there are similarly priced homes. If Seattle prices continue to stay high and bay area prices continue to stay low I predict an exodus of tech workers, like me, as the economy recovers.

    But they have a royally screwed up state government, which is going to run things into the ground down there. In that regard, California is 18 years ahead of Washington state. ;-)

  37. 37
    Flotown says:

    I’m surprised that the high-end homes are in fact falling so dramatically in light of what I see in my day-to-day life. The rich are definitely getting richer and the poor poorer. During my day I see all these bullish investor-types (mostly in CRE and diversified wealth funds investing in CRE) and tech people (some of the key tenants in said CRE) buoyed by seemingly good prospects looking ahead, and when I switch hats and volunteer at nights I see people for whom there has been no end to the recession – as evidenced by the increase in food stamp usage, wait for public housing, the percent underemployed and unemployed. Back to the real estate, in close-in seattle neighborhoods, sure prices are down a bit from peak, but its nothing like the paradigm that softwarengineer depicts. There are several industry sectors in seattle that (for now) are thriving, despite the lackluster overall employment picture.

  38. 38
    Mongo says:

    Flotown:

    In my experience the rich don’t tend to buy “high-end homes”

    Just those with large incomes who spend most or more then is coming in.

    They may be in a fancy home but they have little wealth.

  39. 39
    Macro Investor says:

    By Kary L. Krismer @ 36:

    By corncob @ 34:

    I have been considering moving back to California lately. More tech jobs, better weather, better food and now there are similarly priced homes. If Seattle prices continue to stay high and bay area prices continue to stay low I predict an exodus of tech workers, like me, as the economy recovers.

    But they have a royally screwed up state government, which is going to run things into the ground down there. In that regard, California is 18 years ahead of Washington state. ;-)

    Shhhhh. It’s all unicorns and pink ponies in SUNNY California. Spread the word.

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