Residential Values by Market Segments – Here it is!

A few months ago, we were looking at real estate property values and the state of the financial industry and thinking that values were going to continue to go down. In the past few weeks, we wrote about this subject again. Now, we are going to look at real estate values in terms of the different market segments. As the data is showing, property values are going down overall, but, looking at the numbers more closely, we are starting to see noticeably different trends in different market segments. Despite these differences, though, it is still the case that all markets and market segments seem still to be negatively affected, regardless of whether you are looking at the upper end or the lower end of the market.

The good news is that some markets have, I believe, reached the bottom. In a post earlier, we were mentioning an economist from UCLA’s Anderson School who said that some markets might have bottomed out. DataQuick’s numbers appear to confirm this trend and also show new ones. Although the entire country is showing some similar overall trends, regional markets still exhibit distinctive characteristics. For example, Detroit may be seeing far more severe problems than Boston as its primary industry is going through difficult times. Similarly, the New York City metropolitan area had held up fairly well compared to the rest of the country until the financial storm decimated local jobs, whereas the San Francisco area has experienced a more nuanced downturn.

The lower market, considered the market for “blue collar” homes, had borne the brunt of the sub-prime market debacle, but it is now stabilizing in regard to prices in some places. These markets have lost up to 75% of their values. The good news is that these markets have started to see a significant increase in the number of transactions in some places. Numerous buyers (including some investors) are flocking to these markets and acquiring properties. However, this increased buying seems centered primarily in the surrounding areas of major metropolitan cities that have not experienced major economic problems. For example, in the San Francisco Bay Area’s Contra Costa and Alameda Counties, we are seeing increased buying, as indicated in the San Francisco Chronicle article.

The middle and upper markets have now been hit too, as illustrated by the article in the Boston Globe and the previous SF Chronicle article. Most of these markets were stable until late September and even early October, but with the repercussions of the financial crisis, they are now also suffering. These markets are going to experience sharp downturns within the next 6 to 9 months, because white collar workers are losing their jobs and the net worth of many of these individuals have been halved (partly because dramatic stock market losses have lead to major drops in 401k plan holdings or IRA portfolios).

Looking at 2009, there is hope because we are seeing the beginnings of a bottoming out.