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The Case-Shiller data for December, released last week and covered in detail by Kelly, exhibited the same pattern that we have seen in recent months: prices in the high tier continued to drop even as the low tier rebounded further, with the middle tier and aggregate indexes more or less splitting the difference.

The high tier was actually down by .2 percent on a year-over-year basis, compared to an annual increase of 2.2 percent for both the low and middle tiers.

The tiers, for those who don’t remember, are determined by simply dividing all the sales in the measurement period into thirds.  The high-priced tier consists of the most expensive one-third of homes sold in the period, and so on.

The lack of pep in the high tier’s step should be considered alongside the following graph, which shows that higher-priced homes fell a lot less than their cheaper brethren since the peak of the housing bubble:

But the previous graph should be considered alongside the next one:

This graph shows that the low-priced tier, and to a less extent the middle tier, rose far more in price during the boom.  Their larger ensuing crashes served to bring the three tiers back to rough parity.  So we shouldn’t expect that the high tier will necessarily fall from the peak as much as the low tier did, because the fact is that the high tier began the crash at a more reasonable level of valuation.  (Far from reasonable in an absolute sense, I should add — but more reasonable than the lower tiers).

The current price divergence occurs despite the fact that the three tiers fell roughly back to a more normal relationship with one another in 2009.  There are several likely causes for this behavior.  The most important is that much of the government intervention in the market favors low-priced homes.  Another is that investors, who are playing a big part in the rebound, tend to favor low-priced homes because they are easier to rent for a profit.  Yet another is that the high end never experienced the type of foreclosure-driven washout that took place on the low end and sowed the seeds for the ensuing bounce there.  Finally, perhaps in these tough economic times San Diegans in aggregate just aren’t as interested in expensive houses as they used to be.

I still believe, however, that the greatest cause is that the government housing booster programs (the tax credit, FHA loans, etc.) have a lot more traction at the low end.

As of the end of 2009, whatever the precise causes may have been, higher-priced homes just were still sitting out the rebound.

— RICH TOSCANO

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