Much attention has been focused on rather broad and aggregate measures of house prices on a national level. To be sure, the overall average home price has declined by unprecedented amounts in the past few years; however there is wide variation around these national averages. Some metropolitan areas have experienced much larger declines than others, and some have declined very little.
Substantial variation around MSA averages also exists. As shown in Figure 1, price declines since the peak are particularly severe for those homes in the lowest of the three house price tiers.
For example, the most recent measures of home prices in the lowest tier for Los Angeles County are 51 percent below their peak values, which were reached in the first month of 2007. Prices in the upper tier, on the other hand, have declined by 28 percent since reaching their peak in April of 2006 . In fact, the price declines since the peak have been most pronounced among the lowest price tier in each of the 16 MSAs for which these data are available.
One theme at Home Value Forecast is that more variability can be found among price patterns during the past ten years by looking at a variety of submarkets within any given metropolitan area, especially those hardest hit by the collapse in house prices. Follain (2010) offers considerable evidence on this point in a recent paper about house price patterns in declining cities . For example, he highlights wide variations at the ZIP code level in two metropolitan areas particularly hard hit in the current crisis: Cleveland and Stockton.
Such variability in house price patterns was also described in a previous article written in early 2007 . Home price trends at the ZIP code level were analyzed between 2000:Q1 and 2006:Q2 within LA County. An interesting “factoid” was uncovered. The ZIP code in LA County with the slowest rate of appreciation between 2000 and 2006 was the famous 90210, which is the area of Beverly Hills made even more famous by the 1990s TV show of the same name.
As many may know, this is a very prosperous neighborhood in the Beverly Hills section of Los Angeles. All of the other ZIP codes which were examined experienced more price appreciation between 2000 and 2006 than did 90210. This pattern was consistent with a key part of a broadly held narrative about one of the causes underlying the surge in house prices in the early and mid-2000s; namely that the expansion of mortgage credit, especially in the form of subprime mortgages to moderate income households, stimulated a particularly large surge in house prices in the neighborhoods of low and moderate income households who used subprime mortgages to purchase their homes.
This article updates the previous 2007 article. It considers price changes at the ZIP code level within LA County from 2000 through the most recent data available, 2011:Q2. This update offers the opportunity to examine changes from 2000 to the periods that proved to be the ultimate peaks for each of these ZIP codes as well as capturing the declines from their peak values to current values. Data on the median sales prices of regular sales between 2000 and 2011:Q2 are the key focus of attention and come from Home Value Forecast and other data collected by Collateral Analytics.
For each ZIP code, the maximum average annual price was computed. The overwhelming majority of these peak values (93 percent) occurred in 2006 and 2007. These peak values were then used to compute the percentage price change between the values in the peak year relative to both 2000 and the first two quarters of 2011. These are the basis for generating estimates of the maximum increase in prices during the rise of the bubble and amount of the decrease from the peak to current values, most of which registered their lowest values for the 10 year period in the first two quarters of 2011. The distribution of the percentage changes from 2000 to the peak, and the changes from peak to 2011:Q2 are contained in Figure 2. The left hand side captures the distribution of prices between 2000 and the peak; the right hand side captures the distribution of changes since the peak thru 2011:Q2.
One of the main takeaways from these results is the importance of when a home was purchased and sold. For those who bought in 2000, the investment has been profitable. The increases enjoyed by homebuyers who bought in 2000 to the peaks of 2006-07 far exceeded the declines from the peak through 2011:Q2. This implies that those who bought in 2000 are still well ahead of their original purchase prices. In fact, every ZIP code registered an increase in the average median sales price between 2000 and 2011:Q2. Those who bought early in the 2000s and sold at or near the peak registered average increases of nearly 200 percent. On the other hand, those who bought late and at or near the peak are experiencing property value decreases of about 50 percent on average among the various ZIP codes.
Another goal of this article is to highlight how the price patterns among LA County ZIP codes in the past 10 years depend upon where one bought within LA County. To make this point, the median sales price data are supplemented with information about selected characteristics of the 231 ZIP codes chosen for analysis . The supplemental information consists of a variety of financial and demographic traits of each ZIP code based upon the 2000 Census and provided at the Los Angeles United Way’s web site . This article summarizes a wide variety of patterns with these data using regression analysis to measure the relationships between house price changes between 2000 and the peak and from the peak to current values and key economic and demographic traits of the ZIP codes as of 2000.
Two notable patterns emerge from this focus upon variability among ZIP codes. First, the ZIP codes with relatively low house prices in 2000 enjoyed the largest increases between 2000 and the peak, but have also seen the largest declines since their peaks. Consider the example of ZIP code 90044, which is in the South Central part of LA County. The median sales price in 2000 averaged $119,000. The median sales price of properties in this ZIP code peaked at $422,000 in 2007. The average median sales price in the first two quarters of 2011 was $202,000, which is 52 percent lower than the peak and 70 percent higher than in 2000.
The statistical analysis supported these patterns for most of the other ZIP codes. Figure 3 is one output of that analysis. It contains information that confirms this pattern for value changes from the peak to current values.
The blue dots show what actually happened and the red dots plot the pattern captured by the regression: the higher priced ZIP codes as of 2000 have seen smaller declines since the peak. For example, the 90210 ZIP experienced a price decline of 28 percent since the peak, compared to a weighted average decline among all ZIP codes of 38 percent. ZIP 90077 in Bel Air experienced a relatively modest decline of 15 percent. The average sales prices in these two ZIP codes in 2000 were $1.45 million and $988,000, respectively. At the other extreme, ZIP codes 90044 (South Central LA) and 93534 (Lancaster) experienced declines of 52 and 70 percent, respectively. Initial prices in these ZIP codes in 2000 were $119,000 and $76,500, respectively.
A second but related pattern also emerged; house prices tended to rise more during the bubble phase among lower income ZIP codes than among the higher income ZIP codes. Figure 4 seeks to capture this point.
It shows that the ZIP codes with relatively high median household incomes in 2000 experienced declines much less severe than those in the ZIP codes with relatively low median incomes. The ZIP codes noted above exemplify this point as well. Average household incomes in ZIP codes 90077 and 90210 were $142,000 and $113,000 in 2000 and well above the average for the entire county of about $44,000. Average household incomes in ZIP codes 90044 and 93534 according to the 2000 Census were $22,000 and $31,217, respectively.
At Home Value Forecast we believe that all real estate is local, and what’s happening at the ZIP level is not always consistent with CBSA or national trends. In LA County we’ve seen that when and where you bought have an enormous impact on the profitability of home ownership – a pattern we’ve seen in many other markets across the country. In future articles we will explore other drivers of these patterns, including the impact of higher loan-to-value ratios.
 The Case-Shiller price indexes are obtained from http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff–p-us and are as of April 2011. Index values for Cleveland are not available since 2008 due to large standard errors so a measure of the change from the peak to April 2011 values is not available.
 See an interview with Follain about this study and a link to the larger study at: http://www.rockinst.org/QA/follainj/2011-01-real_estate_declining_cities.aspx
 See “ZIPpity Do Da!” at: http://www.ficonsulting.com/ZIPpity-do-da by James R. Follain and Barbara A. Follain.
 A number of filtering criteria were used to focus upon those with substantial numbers of households. For example, those ZIP codes with a population of less than 2 persons per square mile were eliminated since these are dominated by nonresidential properties. Also, those with fewer than 2,000 households and fewer than 20 square miles were excluded from our sample.
 Los Angeles United Way web site on ZIP code data: http://www.unitedwayla.org/getinformed/rr/socialreports/Pages/ZIPCodeDataBook.aspx
James R. Follain, Ph.D.
James R. Follain LLC and Advisor to FI Consulting
Norm Miller, PhD
Professor, Burnham-Moores Center for Real Estate
University of San Diego
Michael Sklarz, Ph.D.
About Home Value Forecast
Home Value Forecast was created from a strategic partnership between Pro Teck Valuation Services and Collateral Analytics. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.
Each month Home Value Forecast delivers a monthly briefing along with “Lessons from the Data,” an in-depth article based on trends unearthed in the data.
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