Different Bubbles, Different Crashes, Different Recoveries

Bay Area Home Markets by County - September 2013 Special Report

Bay Area counties and market segments experienced housing bubbles and crashes of significantly different magnitudes. Though their current recoveries are similar in trend lines, the scale of recovery varies and current home values in relation to previous peak prices vary widely. This report explains some of the reasons why.

Bay Area Home Values since 2000 by Price Tier - Way Up, Way Down, Sharply Up Again

The Case-Shiller Index for the 5-county SF Metro Area divides the market into three equal sets of unit sales by price-range tiers: low, middle and high. This chart compares their trend lines side by side, by June Index readings since the year 2000: the numbers relate to a January 2000 value of 100, thus an Index reading of 202 signifies an increase in value of 102% since that date.

The chart above illustrates the market bubbles in all three tiers, but particularly how the subprime lending fiasco supercharged the lowest price tier of Bay Area homes to an insane 176% appreciation – i.e. an almost tripling in price – in less than 7 years. The foreclosure and distressed-property crisis then hit this segment the hardest, inflicting a crushing 62% drop in values. Those neighborhoods, communities and counties with mostly higher-pricedhomes were much less affected by the subprime effect: they appreciated less in the bubble, depreciated less in the crash, began their recoveries earlier, and are now much closer to previous peak values. (In fact, many of San Francisco’s neighborhoods have now re-attained or surpassed previous peak prices.)

Of course, there are other important economic and social factors at play in the markets of different communities, but as a general overlay, the price-tier analysis is surprisingly relevant to what has happened in our different real estate markets. Because subprime lending inflated such large bubbles in some counties, it may be unrealistic to expect their low-price-tier homes to re-attain previous peak values anytime soon, even with the dramatic recoveries underway. 

Note that the Case-Shiller SF Metro Area does not include Napa and Sonoma, but their market trends generally played out in the same way. Also as pertaining to percentages of appreciation and depreciation: if a home has a 100% increase in values, then a 50% decrease, the value is back to where it began.

Median Home Sales Prices by County

County median sales prices are generalities that, as will be seen later in this report, mask enormous disparities in the prices of underlying sales, but they do convey an idea of comparative home costs in different areas. In the chart below, the overall median prices are for both house and condo sales, comparing the approximate bottom of the market, the third quarter of 2011, with today. Note that condo sales now outnumber house sales in San Francisco (a recent occurrence), yet constitute relatively small percentages of sales in the other counties.

Median prices often fluctuate for other reasons than changes in market values, such as variations in the distressed and luxury home segments, inventory available to purchase and available financing – which is why Case-Shiller Index trend lines do not correlate exactly with changes in median price.

If you’d like to drill down to median sales prices by SF neighborhood or Bay Area city, they have been mapped out here for second quarter sales: Mapped Bay Area Home Values

You can read the full report here.

All data from sources deemed reliable, but may contain errors and is subject to revision. Statistics are generalities and how they apply to any particular property is unknown without a specific comparative market analysis. All numbers should be considered approximate.© 2013 Paragon Real Estate Group