The Case-Shiller index data for October was released today. Kelly Bennett has written it up here and here, for those who want the full rundown.

The thing that jumped out at me was that for the first time during this bust, the highest-priced of the three Case Shiller price tiers experienced a greater monthly decline than either of the other two.

The high-priced tier fell 2.9 percent between September and October, easily beating the 1.8 percent drop in the middle tier and just edging out the 2.8 percent drop in the low-priced tier. Until this month, the low tier had almost always declined the most of the three with the middle tier falling the second hardest. The accompanying graph shows that the high tier has been the most resilient of the three.

There are a few reasons for this relative strength. The biggest is that high-tier prices experienced the least dramatic rise during the housing boom, so they had less ground to make up on the journey towards affordability. The second is that the utter devastation in the subprime mortgage industry had a much bigger impact on the lower-priced areas where subprime mortgages were used more widely.

Now the cards may not be so stacked in favor of the high end. First, the lower tiers have fallen to a point where they are more on par, valuation-wise, with high tier homes. While they initially rose higher, they’ve now fallen further to make up for it. So all other things equal it would make sense for the tiers to commence falling at a more similar rate.

Second, as I wrote about last month, higher-priced homes are in much less demand than their cheaper counterparts. Lower demand equates to less support for prices.

Third, while the high-end areas were fairly well shielded from the subprime debacle, no area is immune from job loss among its residents. Recent job losses could be affecting the high tier in a way that the subprime crisis could not.

Bear in mind that because of a combination of falling prices and a shift in buyer preferences towards lower-cost houses, the “high tier” consists of a cheaper set of houses, on average, than it used to. But because the Case-Shiller index is calculated by comparing same-home sales, that set of houses was indeed falling in price as of October. And for the first time since the bust started it was doing so faster than the houses in the middle or low tiers.


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