Case-Shiller: Low End Rebounds, High End Languishes

The latest release of the Case-Shiller home price index showed that San Diego’s home price rally continued into October.

As it did last month, the high-priced tier once again put in the weakest showing — an increase of .2 percent for the month compared to a 1.8 percent increase in the low-priced tier.  The middle tier rose by .5 percent and the aggregate index by .4 percent.

These increases actually understate price strength, as October is not a typically strong month for home prices.  I recommend checking out Kelly’s writeup of the seasonally-adjusted numbers for some interesting thoughts on the matter.

Given that the Case-Shiller index is always a couple months behind and that we have a reasonably accurate way of estimating more recent price changes, these monthly Case-Shiller releases are most interesting for the light they shed on how different market segments are behaving.  The three-tier system is fairly crude but it does provide an idea of what’s going on in the lower, middle, and upper one-third (pricewise) of all homes sold in each period.

What we’re seeing in that respect makes sense given how the bubble and bust have played out.  The low priced tier, having been driven to far greater heights on the back of the subprime lending frenzy, crashed much harder than the aggregate index (as the accompanying graph shows).  The high tier’s decline, in contrast, was much more muted.  Now, the shelled-out low tier is benefitting from lower prices and massive government stimulus (which has tended to be aimed at lower-priced homes) to stage a price rebound as the high tier stumbles along without doing much of anything.

Given the nature of the government’s intervention and the relative valuations between high-priced and low-priced homes, this disparity between the high and low tiers could continue for a while.

— RICH TOSCANO