Home prices based on price level, not just geography, tell a whole bunch about the housing market. Two key market indicators – Days-on-Market and Price Reductions – vary widely when comparing the top and bottom quartiles. Top-end sellers are on the market longer, but take fewer price reductions:
The difference in list prices between the top quartile (most expensive 25% of homes for sale) versus the other three quartiles is significant:
Of course, the bottom quartile of homes is jammed with REOs, distressed, and foreclosures – that makes them more prone to fire-sale pricing. While days-on-market is shorter, seems that bottom-end sellers (whether they be individuals or institutions) are less patient and have more flexible reservation prices. Getting off the market quicker matters more than hitting their ask prices. This could also expose overall market weakness for bottom-end homes, as their general state of disrepair and end of the tax credit might be putting a squeeze on demand down there.
Couple this with higher consumer confidence in the upper income strata – Tiffany & Co. had strong Q4 holiday sales and Williams-Sonoma beat earnings estimates for example – and you have a more patient seller in the housing market’s high end. Published research also shows that higher end sellers are cognizant that the buyer pool is generally smaller and are willing to grind it out longer. With an assumably larger wealth cushion, they’re able to do so while the lower-end seller is more likely in a distressed situation.
(For a look at of some of this published research, check out the Literature Review we published in Q4:)
Active Housing Market Indicators to Future Prices – A Literature Review