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Cheaper homes inflated the most during the boom

Posted by: Peter Coy on November 13, 2007

In many cities, the housing boom and bust have been cruelest to the people who could least afford it. That becomes clear from analyzing data released last week by Standard & Poor’s, which like BusinessWeek is a unit of The McGraw-Hill Companies.

The new S&P numbers break the housing market into thirds: lowest-priced, mid-priced, and highest-priced. In many metro areas, the biggest price gains were in the lowest-priced homes.

Low-priced homes rose dramatically faster than mid- and high-priced homes in Los Angeles, Washington, Miami, New York, and San Diego. They rose faster, but not as much faster, in Minneapolis and Chicago. They rose only slightly faster, or not at all faster, in Cleveland, Atlanta, Phoenix, and Las Vegas. (I didn’t look at the other cities in the data—sorry.)

On the one hand, of course, rising prices are good for homeowners who got in before the boom. They got a windfall. But buyers who got in late had to extend themselves unnaturally to afford homes. They took on unaffordable amounts of debt. And now, prices are falling in all price ranges. That could wipe out whatever little extra equity that low-income families managed to acquire.

I’d like to hear from people in Phoenix and Las Vegas why they think the price trends in their metros were the same in all price brackets, when there were big differences by bracket in other cities that had fast-rising prices.

Reader Comments

Nimesh Khatri

November 13, 2007 7:52 PM

I am from PHX. Prices went up in all brackets because most of buyers were amateur investors. I think a lot of these amateur investors had a small capital to invest in properties, which limited their option/interest in cheaper properties. As always... all investors are good speculators and that probably drove the price of cheaper houses.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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