There has been much emphasis in the bloggosphere about the fact that subprime was only the beginning of our troubles. With warnings of huge defaults of Alt-A, Option ARM , and even Prime loans soon to come (yes I am mixing products and types).
We are now seeing big increases in the defaults of these products and types of loans. There seems to be a general consensus that the lower price ranges have more or less bottomed....but the mid to high end are still to take a big hit.
However what I want to know, is what exactly is mid to high end? Is it relative to all the homes in a metro area?.....say 350k for Sac. Or is it relative to the entire stock of housing in California?...say an 650k home in one of the coastal cities.
I wonder about this, because what might be considered a high end price range in the Sac Metro area, is probably just a starter home in many of the Coastal cities (LA, SF, San Diego, Orange County, Santa Barbara, etc.).
Basically I want to know how much of the forecasted doom and gloom applies to Sacramento and other cities in the valley (i.e. Stocton, Merced, Fresno, Bakersfield), versus the cities along the Coast of our financially doomed state.
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I guess “high end” could be defined in a number of different ways, here are a few:
• As a straight percent of all houses, like 1/3 low, 1/3 mid and 1/3 high (I believe Rich Toscano uses this method on Piggington’s)
• As a percentile, e.g. top 80th percentile
• As a ratio of asking price to annual rent, e.g. say a ratio greater than 15.
• Ratio of asking price to median income, basically would it take a “high” income to support the asking price considering a typical 30yr, 20% down, fixed rate loan.
• Or a combination of the above to find the common ones.
• Others?
You've posed 2 good questions here Jen.
1. What constitutes high end, and is it relative to the price distribution of a MSA?
My opinion is a ratio of median price to median income is as good a yardstick as anything. Another definitian that makes some sense is if the demand at a price point comes from move up buyers, rather than first timers, then it is higher priced.
2. Since, by whatever definitian applies, greater Sacramento has a lower % of high end than coastal areas, will they be spared the worst of the pain to come as prices adjust to the lack of demand in the hgher part of the market?
I doubt it. When you consider that as the higher priced homes adjust downward, they will put further pressure on today's lower prices homes to go lower yet. Bottom line is more house for that 200k price and what is today's bargain at 200k might be tomorrow's bargain at 125k.
that's definition not definitian, can't believe I missed that.
This is the data that got me to thinking about this issue...
http://www.doctorhousingbubble.com/wp-content/uploads/2009/07/county-vs-income.png
Yolo, Placer and El Dorado are somewhere in the middle, in terms of median income/price ratios, and Sac County is squarly in the bottom third....
Absolutely, all things are relative from one person to the next. I beleive it comes from the heuristic(sp) patterns that over time form relationships that causes coupling of value and housing.
But in laypersons terms, what constitute high end is relative. At some point people with a gajillion dollars reach a declining marginal limit to housing that price and amminities cease to be an issue. And at the other end a high end dwelling can be considered something that keeps you warm and dry in the winter and cool and shaded in the summer.
I did like McB44's measurements of median price and medium incomes. The coastal communities require a premium for location; however, a beach house in Galveston, Tx doesn't offer the same premium that a home at Asilomar demands.
I have recently bought and sold in what I consider the below median and above median markets. I bought up to what I considered a high end home based upon the realities of our income and the things we desired in a home. At the same time we sold our old home to a first time buyer. (They were aware and took advantage of the first time home buyers incentives.) I believe our home is high end and while still room to improve to the margin it is comfortable and fulfills our definition of high end.
But then again, look what $450K will get you in the Sacramento MSA compared to other areas / MSA's. I think the answer is bound in the terms of making of a market by the demand of buyers against the supply of sellers. In yesterday's economice climate the market was unsustainable at its today's current rate and is now in the process of being corrected.
I think that correction will continue with its spillovers and externalities and we have not seen the bottom yet; not in all price ranges. And now we come full circle on the argument, ranges for the market.
Probably just as a percentage of the median for city / zip:
00% - 25% - Ghetto
25% - 50% - Low End, Starter Homes
50% - 75% - Mid Range, Move up homes
75% - 100% - High End
Can't really look at it in terms of $$ alone as others have said. $200k gets you a really nice home in Texas or some crapbox in Sac where you will get shot or robbed before you finish unpacking...
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