A look at S&P/Case-Shiller tiered-price indices

S&P Indices publishes tiered price data for 16 of the 20 MSAs it covers (Cleveland’s tiered-price indices were suspended in November 2008 due to lack of sufficient sales pairs).  Tier breakpoints – price levels that divide recent sales pairs in each market into thirds – are calculated for the period covered by the latest index points.  As is the case with composite home prices, MSAs do not behave the same across and within tiers. Using Atlanta, New York and San Francisco as examples, some of the differences are highlighted below.

On a relative basis, all three tier markets closely followed each other in Atlanta up until about the middle of 2010.  Even at their peak, none of the indices went above a level of 140, which means that none of the tiers saw more than 40% price appreciation from their January 2000 levels.  Since then the low-tiered market has been in freefall, reaching its lowest level in its 20-year history in March 2011. With an index level of 60.48, Atlanta’s low-tier market is seeing average home prices about 40% below what they were in January 2000, more than 11 years ago.  The high-tiered market is still about 5% above 2000 levels. From their peak, Atlanta low-tiered home prices are down 56.2%, the high-tiered market is down 24.0%, and the aggregate market is down 27.9%.

S&P/Case-Shiller Atlanta Tiered-Price Indices. Sources: S&P Indices and FiServ

As the chart below illustrates, San Francisco low-tiered homes were the most responsible for both the run-up and subsequent contraction in home prices.  At its peak, San Francisco’s low-tiered market reached a level of 276.13, meaning that average prices were more than 175% above their January 2000 level.  The high-tiered market was up about 90% versus 2000; while still significant, high-tiered homes about doubled in price whereas low-tiered almost tripled.  From their peak, San Francisco’s low-tiered homes are down 59.4%, the high-tiered market is down 26.9%, and the aggregate market is down 40.6%.

S&P/Case-Shiller San Francisco Tiered-Price Indices. Sources: S&P Indices and FiServ.

New York’s low-tiered homes also were the most responsible for the run-up in home prices in its market, but did not witness as severe a subsequent contraction as either Atlanta or San Francisco.  At their peak, New York’s low-tiered market saw a level of 259.78, so average prices were about 160% above their January 2000 level.  The high-tiered market peaked about 95% above 2000; very similar to San Francisco.  From their peak, however, low-tiered homes are down 30.4% in New York, the high-tiered market is down 19.2%, and the aggregate market is down 24.2%.  The downside turmoil in the New York markets was less severe than that of San Francisco, even in the low-tiered market.  In March 2011, the low-tiered market level for New York was 180.87, or 81% above its January 2000 level; whereas in San Francisco it was only 111.98, a far more modest 12% retention in price appreciation.

S&P/Case-Shiller New York Tiered-Price Indices. Sources: S&P Indices and FiServ.

Not only do the regional tier-prices behave differently, but the tier breakpoints do too.  As of March 2011, Atlanta’s low-tiered market had a breakpoint of homes selling under $120,533 and a high-tiered market breakpoint above $221,679.  San Francisco’s low-tiered market’s breakpoint was for home prices under $312,546, more than 40% above the Atlanta’s high-tiered breakpoint.  Within the 16 markets where we publish these data, Phoenix and San Francisco sit on opposite ends of absolute home values.  Phoenix’s market registers the smallest low-tier breakpoint, with one-third (1/3) of its homes selling under $97,859, and San Francisco had the largest, with one-third of its homes selling under $312,546.  In their relative high-end markets, the breakpoint for Phoenix is for homes selling over $169,583 and for San Francisco it is $573,577; clearly home values are relative depending on where you live.

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2 Comments

  1. Joe says:

    The confusing aspect about the tiers is that they have shifted downwards with prices. For example, the 75 percentile for say LA was about $720k at it’s peak, but is now about $450k. Since there is still a lot of activity in the $600k-$800k price range, it is now getting mixed in with lower priced homes. This surely could be distorting what is going on with prices above the upper tier? How do we know what is happening in say the $600k, or $800k and upwards price ranges?

    • Maureen Maitland says:

      For our tiered price indices, sales pairs are assigned to tiers based on a house’s first sale price; and the house will be in the calculation of that tier index at the close of the second sale. Once that is done, that house may enter a new tier based on the second sale price and the latest tier break points, as the second sale now becomes the first sale for the next sales pair for that house.

      The tier breakpoints should be adjusted as market prices change, so that tier indices continue to represent the roughly 1/3rd price segments of each market. If we kept the tier breakpoints fixed, then the repeat pair samples would start to represent different segments of the market over time (e.g. top 1/3rd to top 1/4th to top 1/5th, etc., when prices are falling). That would introduce a shifting sales mix into the tiers and probably bias the index up or down (unless you believe, for example, that the quality/size of a $720k home in 2006 was the same as the quality/size of a $720k home in 2011).

      Our tiered price indices are designed for 1/3rd of each market, and each market’s breakpoints differ, so we cannot isolate what happens in a particular dollar range.

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