Value Sinking Fastest on Homes Priced Low to Start


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Value Sinking Fastest on Homes Priced Low to Start


DURING the great housing bubble, it was the least expensive homes whose prices went up the most. And now it is those homes that are suffering the most.

“That is where the most creative lending was,” said David Blitzer, the chairman of the index committee at Standard & Poor’s, arguing that the lax lending standards played a significant role in the inflation of prices.

The S.&P./Case-Shiller indexes released this week showed widespread declines in home prices in the third quarter of this year as the market suffered from the removal of temporary tax credits that had led to a small rally in home prices earlier in the year. No region had lost more than 5 percent in a quarter since mid-2009, but that happened to Phoenix in the third quarter.

For 16 major regional areas, S.& P. publishes separate indexes for the top, middle and bottom thirds of homes in the area, as measured by price. Those figures show that from the beginning of the decade through each area’s peak, prices of lower-value homes rose faster than either of the other groups in each of the markets except one, Denver, where the rises were virtually identical for all groups.

The latest figures show that prices of lower-cost homes have fallen further from the peak in each of the 16 areas.

As a result, the pain of lower prices is being felt most strongly by homeowners who are most vulnerable, both because they may have taken out mortgages whose interest rates rose after initial teaser periods ended and because those owners are more likely to be facing prolonged unemployment.

While mortgage interest rates are low now, underwriting standards are tougher than they were during the bubble, and would-be buyers of lower-priced homes are likely to face more difficulty in getting mortgages than prospective purchasers of more expensive homes.

The accompanying charts show price performance in eight regional markets, and indicate how far down prices were from peak levels in September. The charts also show just how expensive a home needed to be in September to qualify for each tier.

Those prices vary widely. In the San Francisco area, which includes homes from the very expensive Silicon Valley region to the much less expensive areas east of San Francisco Bay, a home costing less than $335,000 was in the least expensive group. By contrast, in Phoenix, where low-price homes now cost only one-third what they did at the peak, a home costing just $177,000 qualifies for the top third.

Las Vegas, another area that suffered greatly because of overbuilding and speculative excesses, also has homes that are relatively cheap. It is possible that those relative bargains will again begin to draw retirees from other parts of the country at some point, providing support for depressed markets.

The Las Vegas and Phoenix markets had the sharpest increases during the boom, each rising about 50 percent during the peak 12-month period. But from the beginning of the decade through the peak, other areas had larger total increases. Lower-priced homes in the Miami and Los Angeles regions showed the largest gains, each about 240 percent, about 100 percentage points more than the rises in Las Vegas and Phoenix.

Floyd Norris comments on finance and the economy on his blog at


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