Urban Wire The cheapest homes fared better in the housing crisis, but only in certain regions
Jun Zhu, Bing Bai
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The housing boom and bust impacted homes differently depending on their price range. National averages suggest that the lowest-priced homes rose higher during the boom and recovered faster from the bust, but the pattern really varies by neighborhood.

A look at the national numbers

Nationally, four price tiers (low, middle-low, middle-high, and high) share the same trend of boom, bust, and recovery, but each with different magnitudes (see figure below). From 2001 to 2006, the price of the lowest-priced homes grew faster, about 88 percent compared with 80, 77, and 65 percent for the middle-low, middle-high, and high tiers, respectively.

Following the collapse of the housing market, the low tier declined by 26 percent from 2006 to 2009, more than the high tier’s 22 percent. The two middle tiers suffered the largest drop of 28 and 31 percent. Since then, the lowest-priced tier has recovered the most, with prices up by 33 percent, and is now only 2 percent below its peak level. By contrast, the prices of middle-low, middle-high, and high-priced tiers increased 16 to 23 percent over the same period.

Home price dynamics are largely regional

Minneapolis reflects the national trend: the lowest-priced tier fared much better than the higher-priced tiers (figure below). Before the crisis (2001 to 2006), homes in the lowest tier appreciated about 61 percent compared with 49 to 54 percent for homes in the higher tiers. During the crisis (2006 to 2009), highest-priced homes depreciated the least. After the crisis, the lowest-priced tier outperformed the middle and high tiers again, appreciating 40 percent, while its counterparts only appreciated 8 to 17 percent.

But Atlanta is a different story. Before the crisis, house price appreciation was much faster for the lowest-priced tier than the other tiers (Figure 3). However, during the crisis (2006 to 2009), low-end homes experienced the biggest price drop at 31 percent. After the crisis, the price growth of low-end homes has not returned to the high levels of the boom years, and still lags behind the more stable high tier.

The data reinforce the old adage: the housing market is segmented and regional. High-end and low-end homes usually experience different price appreciation and depreciation, but how they differ varies from one regional market to another.

Research Areas Housing finance
Tags Housing and the economy Impact of crises on housing
Policy Centers Housing Finance Policy Center