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Low-End Home Prices More Useful in Predicting Big-Picture

Khater uses the example of low-end prices hitting bottom in March 2011, nearly a full year earlier than the trough for high-end properties and for prices overall. "Not only can turning points be different," he says, "so can the momentum in low-end versus high-end price changes."

Pre-crisis year-over-year house price increases peaked at 19.3 percent for low-cost houses in March 2005 then decelerated to 9.3 percent 12 months later. On the high-end of the price range however, prices in March 2005 were up 15.2 percent from the previous year and 12 months later the annual increase was still 10.8 percent.

Khater says that looking at high versus low-end price trends reveals that low-end changes and levels lead high-end counterparts by six months to a year and that prices at the low-end are much more volatile than those at the high end. The latter occurs because there are three major buyers at that price level; first-time buyers, lower income repeat buyers, and investors. Although there are different reasons, each segment is more sensitive to economic trends than high-end buyers.

 

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Jann Swanson
In the most recent issue of CoreLogic's MarketPulse on-line magazine Sam Khater suggests that low-end home prices can be useful in predicting the future direction of all home prices. Analysts, he says, frequently base their forecasts on aggregate national price trends or on geography. The former can sometimes mask large changes in different price segments that could provide useful information.