Low-end homes predictor of overall market activity

Home prices in different tiers can fluctuate greatly, but the real estate industry should look more closely at the low-end market for keys of where the overall market may be heading, according to a new study from CoreLogic.

Sam Khater, CoreLogic’s deputy chief economist, said that changes in low-end home prices lead changes in the high-end market by six months to a year. Prices at the low end are much more volatile than those at the high end, he said.

Low-end home prices hit bottom in March 2011, nearly a full year earlier than high-end properties and for prices overall.

“Not only can turning points be different, so can the momentum in low-end versus high-end price changes,” Khater said. Currently, low-end home prices are dropping, particularly in the Southwest. “The magnitude of the declines presages lower growth for prices overall.”

Khater says that when prices bottomed out in early 2012 on the low end, they were still 14 percentage points above those on the high end. Currently, the difference is 22 percentage points, which is the largest gap in 20 years, he said.

“This indicates that the low-end price correction is over and overall price growth will be markedly slower heading into 2014,” Khater predicted.