Tale of Two Markets: Breaking Down Case-Shiller Tiered Indices

Following up on the latest Case-Shiller Home Price Index report for the Bay Area, let’s break down index into top, middle, and lower tiers. The result shows two distinctly different markets since the price lows in the Spring of 2009.

Just as Wall Street has diverged from Main Street, high-end neighborhoods are enjoying a different reality than the rest of us.

 Tale of Two Markets: Breaking Down Case Shiller Tiered Indices

The lower and middle-tiers are generally following the same pattern. When the supply of foreclosures was turned off, interest rates dropped, and buyer incentives kicked in, both market segments rallied. Then, when that temporary stimulus was exhausted, they resumed their declines at a paces of roughly 10 percent per year.

However, the top-tier – homes priced above $579,803 – are only declining at a pace of roughly 3-4 percent per year.


There are lots of possible reasons. Among them, that higher home prices are more directly tied to the stock market, which has performed remarkably well. In April of 2009, the S&P 500 Index was in the 800′s. Today it is at 1,277 – an increase of roughly 50 percent. Also, higher-paying jobs have survived the recession better than lower paying retail-type jobs that are more directly tied to consumer spending and sentiment. Or, that wealthier homeowners with higher-paying jobs were more likely to be able to refinance their homes to avoid foreclosure. And there are probably a dozen other reasons that all contribute to the divergence.

One other note: high-end home prices are holding relatively stable in spite of the reduction in conforming loan limits. Buyers literally need 100K+ more of cash to buy the same high-end home, and they are still doing it. So far, anyway. Honestly, I am shocked by this.

One thing is clear: this circle will square itself at some point. Either the mid and lower-tiers will rally (or stabilize) and the gap will narrow over time. Or, the pillars holding up the high-end will eventually give way and prices will begin to fall at a pace that matches the other tiers.

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I am a longtime real estate agent who has pretty much seen it all during the housing boom as bust. With experience in selling high-end property and low-end foreclosures, raw land, short sales, development work, apartment buildings, and working with investors, I bring a well-rounded perspective to my work.I also have started to do some paid real estate consulting. If you have questions or just need some good real estate advice, book an appointment at http://whattodorealestate.com/In addition to selling real estate, my insights have been featured in The New York Times, The Big Picture, and regularly on Patrick.net. I have also done consulting work with ForeclosureRadar.Starting my career, in 2003, I have sold homes throughout Alameda and Contra Costa counties, specializing in Danville, Alamo, Blackhawk, San Ramon, Dublin, Pleasanton, Walnut Creek, Lafayette, and Orinda. I live in Danville with my three kids.

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28 thoughts on “Tale of Two Markets: Breaking Down Case-Shiller Tiered Indices

  1. Anonymous

    Higher end homes hold up nicer because there arent that many out there in comparison to the many lower end homes which exist in the SV Bay Area. And affluent folks or highly skilled workers still prefer a nice neighborhood with good schools. So, that is certainly another angle to take. In the end good quality wins over bad quantity.

  2. Greg FieldingGreg Fielding Post author

    Except that because this is divided in equal thirds, there are exactly the same number of homes in the top tier as the others. And, it’s all relative. Nicer areas are nicer in comparison to other segments. No homes exist in a vacuum.

  3. Tom StoneTom Stone

    Greg, we have a two tier economy with the top 5% doing just fine and the bottom 75-80% hurting badly. Those in between are doing OK…there are no indications that things will be getting better for the bottom 75-80% in the foreseeable future and plenty of indications that the top 5% will continue to do very well. It is a bifurcated society and a bifurcated market and this is becoming increasingly clear here in the Wine country with many high end properties selling for cash and most of the low and mid range homes leveraged.

  4. Anonymous

    The areas that are holding up are the Scientists and Engineers with decent jobs. Silicon Valley likely has 5-10X more Scientists that most urban areas. Also, add VCs and workers at thriving companies.

    This likely is the key reason for the apparent bifurcation.

  5. Anonymous

    The top tier has two additional reasons why they are holding up. One, the people who own more expensive houses generally have more staying power, larger savings that stall foreclosure longer. Two, the banks that have put repossesed properties back on the market have done so primarily with lower cost homes. They are afraid to release high priced foreclosures because their losses per house are bigger and they don’t want the high end market prices to drop like the other two tiers. I read this is some mainstream articles somewhere a month or two ago.

    You may have noticed that several short sales and foreclosures have recently come to market on the high end. Many more than I have seen for the past several years. The banks will have to put them on the market soon as they cannot hold onto them forever.

    In San Mateo county, 14,500 properties were repossesed since 2007 but only 4,500 were put on the market. 10,000 held back by the banks. There are relatively few houses under $580k in San Mateo county.

  6. HomePriceFuturesTrader

    It’s important in home price discussions to keep in mind what transactions various indices capture, and what they do not. The Case Shiller index excludes certain distressed sales (as well as improvements and new home sales), so while the index calculation is robust, and independently tallied, it “may” not capture all of the components of factors related to sales prices of homes.

    Other indices have other rules, guidelines, and quirks. Just be careful reconciling what you see in your neighborhood, with what you see in any index.

  7. Greg FieldingGreg Fielding Post author

    Absolute bunk. Silicon valley has unemployment well above the state average. The only places I would accept are fundamentally different are a few pockets like Menlo Park, where economic rules no longer seem to apply.

    Do not fall into the trap of thinking wherever you live is different. It’s not.

  8. Greg FieldingGreg Fielding Post author

    It is true that CS excludes some data, but that is done on purpose to protect the integrity of the bigger message. It excludes property flips and when properties “sell” to family members or trusts, for example.

    No data set is perfect, but CS is as good as any. And, it is consistent.

  9. Andrew Jeffery

    Bay Area not different? I beg to differ. The Bay Area is the strongest, most diversified economy in the country, if not the world. We have our share of problems, but where else are there billboards advertising for jobs that cannot be filled?

    Of course the nature of our economy benefits certain segments (IT being the most obvious) and not others. Menlo Park is the popular choice for pockets of strength but that “trade” is known. What about San Carlos? Hugely popular with young families who cannot afford Burlingame or MP — not millionaires, but dual income young professionals at [fill in the blank tech company, law firm, etc]. What about Potrero Hill where Salesforce is moving in down the street and is one of the three n’hoods you can buy a house in SF for under $1.3M. What about Redwood City? Schools improving families who moved in during the boom are having kids and getting involved. East Palo Alto — gentrification starting again as Asian money buys REOs and blue collar immigrant families seek out the last affordable market on the Peninsula. The list goes on, and each community has their own story. There will ALWAYS be growth, demographic movements and areas that are fundamentally improving.

    It’s not all rosy, of course. There are plenty of folks who are hurting just as bad as in other parts of the country and plenty of markets that are dead in the water or worse.

    Greg I know you love Depew and probably keep up on his writing, he talks all the time about divergence being a long term positive and indicative of a healing market. This divergence you identify here is exactly the same thing. Doesn’t mean there still isn’t massive risk in real estate, like there is in equities — it’s a question of time horizons and investment/buying goals.

  10. Greg FieldingGreg Fielding Post author

    These are Bay Area stats. Yes, the Bay Area has more going for it than a lot of other areas. And there are pockets that are doing well for sure – primarily well-to-do areas.

    But it’s still true that all performance is relative. Pleasanton is more expensive than Livermore. But if Livermore drops, sooner or later Pleasanton will follow suit.

  11. Greg FieldingGreg Fielding Post author

    So you think Kevin would see this as an indication that the high-end is “healing” first?

    If there wasn’t all the Government intervention mixed in here I might agree. But this is not a freely-functioning market.

    It would be interesting to get his take.

  12. Andrew Jeffery

    I think Kevin would see it more that as you see individual markets (high or low) diverging from the trend, then you have a market that is starting to heal. Housing hasn’t been “free” in our lifetimes, so even though it is less “free” now markets starting to act on fundamentals is the divergence you want to look for. That is everything from Antioch flatlining for the past 3 years to Potrero spiking, Livermore dropping, etc. He did RT my article, citing the comment that “the time to be bearish on housing was 2005, not 2012″ but beyond that I don’t know how he feels about housing, specifically.

  13. Anonymous

    “Greg Fielding said…The only places I would accept are fundamentally different are a few pockets like Menlo Park, where economic rules no longer seem to apply.”

    In order to reconcile discrepancies in data, there is an emotional appeal to say area X is different…the presumption being X is not an area where you want to live. That said, if you were to say this about MP on a blog that was filled with potential MP buyers, they would assail you, tell you you are full of crap, etc.

    If I may, as much as it pains people to hear it, the fact of the matter is, all areas are “different” to one degree or another. Now some are so “different” to where the economic rules no longer seem to apply (MP). Yet likewise, its very possible that some areas are “different” in that they may simply outperform the rest of the region, yet not as good as MP. The question then is, how “different” is the Case Shiller high end, is it more like the CS low end, or is it more like MP?

  14. Lastango

    Consider flight captial from China as a possible source of support for high-end real estate on the coast. This is a huge factor in BC, to the point where buildings are constructed to be sold as refuges for Chinese money without ever being marketed locally.

    It should be pointed out that the money from China is essentially stolen, and the Chinese economy is a fraud. Now that the debt bubble is collapsing there, the thieves are making a run for it by putting their cash and families beyond the reach of Chinese authorities.

  15. Anonymous

    High end market didn’t crash yet because of the super low mortgage interest rate. Give it 7% or above in the 30 year rate, you will see high end market fall like a stone from the sky.

  16. Greg FieldingGreg Fielding Post author

    That’s been my general belief from the beginning… nowhere is really different, just late to the party. This could easily take another decade to shake out.

  17. bulfinch

    Greg — you are, I think wrongly, assuming that government price supports will be withdrawn at some point allowing for price discovery. I do see this happening. The mortgage market was effectively nationalized in 2009 and will remain so either in perpetuity or at least for several decades more. Without the various price supports at the low and middle end (ZIRP/97% FHA loans/NACA), residential real estate would finally bottom and overshoot and yes — this would reverberate even in the upper end markets. This will never happen, however, or it will happen so painfully slowly that the market will effectively go sideways for a decade or two and the correction will be imperceptible.

  18. Greg FieldingGreg Fielding Post author


    I agree with you that it could easily go generally sideways for a decade. But I don’t agree that uncle sam has total control.

    They’ve already got interest rates down to 4%. They’ve already paid people to buy homes. They’ve “helped” thousands of people stay in their homes longer, keeping the supply f foreclosures low. All this, and they have only really succeeded in prolonging the pain. And, if higher end prices do start to tumble – which could easily happen – I’m not sure what else the government could do to try and prop them up.

    That’s part of why the economic problems in Europe, Australia, and China play such a role… If global economies slow, expect the stock market – and this top tier – to fall as well.

    Or, the next 5 years could be just like 2011. A very slow bleed. Death by 1,000 cuts.

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  20. Anonymous

    Very interesting article. This phenomenon is also true for the Los Angeles Area. I couldn’t understand why the LA high end was so much more expensive relative to rents.

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  25. madhaus

    Also have a look at the Burbed reprint of this column for some further commentary on this article. Greg, you’re called out for your comment about SV unemployment being above the state average.

    Don’t know why you didn’t get a trackback but you can find the article here (if link doesn’t work, go straight to Burbed and look).

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