Occasionally, wonky statistics tell a meaningful story, which is one reason we analyze thousands of pages of data each month. Our monthly US Housing Analysis and Forecast report alone has reached 328 pages!
The CoreLogic Case-Shiller Tiered Home Price Index is one of those statistics that tells a meaningful story. The index, charted below, clearly illustrates how much more volatile lower-priced homes (in yellow) are compared to higher-priced homes.
- Boom times. From 2000 to 2007, low-tier homes appreciated 129%, while high-tier homes appreciated only 86%.
- Bust times. Low-tier home prices contracted more severely during the downturn. By the end of 2011, lower-priced homes were only 18% more expensive than in 2000, while high-tier homes were 34% more expensive.
- Boom times again. Lower-priced home prices have shot up again, appreciating much faster than higher-priced homes. Over the last 17 years, low-tier homes have now risen an average of 4.8% per year, while high-tier homes gained only 3.8% per year despite greater income growth at the high end.
So what does this mean? If you focus on lower-priced homes, beware that you are investing in a more volatile section of the market from a pricing perspective and beware that lower-priced homes have appreciated the most. Remember that relatively high home prices can last for years (as they did from 2003–2007), so don’t panic. Just consider the risks shown in the chart below and always be ready to react when the market shifts for the better or worse.