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What will the subprime market shift do to the price of homes

Out here in Eugene, Oregon our real estate market appreciation has generally stayed in the double digits for the past 10 years. Our 5 year appreciation in Eugene is somewhere around 68%. Nothing to frown upon when you are in the top 20 cities in the nation for appreciation. But, a change has already begun to take place. We are seeing the effect that the virtual collapse of the subprime market is going to have on home prices. After staying strong through most of '06, we started to see real market slow down in the 4'th quarter. What is interesting is where we see the price drops taking place, I believe, indicating a correlation between subprime foreclosures and the markets that are typically dominated by subprime loans. If you observe the graph below borrowed from the trulia folks (don't want to give too much credit), you can see the biggest negative changes in sales price on a percentage basis are visible in the neighborhoods that have the lower average sales price.

Eugene

neighborhoods

Avg. listing price
Week ending Mar 7
Avg. sales price
Oct-Dec '06
Median sales price
Oct-Dec '06
Price per sq. ft
Oct-Dec '06
Name
Amount
w-o-w

Amount
y-o-y
Amount
y-o-y
Amount
y-o-y
Fairmont
$619,662
-
 $395,000
-11.2%
 $395,000
-7.1%
 $146
-38.7%
College Hill
$504,953
-11.8%
 $263,378
-5.6%
 $239,000
-2.4%
 $212
-8.6%
Amazon
$490,074
0.2%
 $358,045
-4.5%
 $294,000
-3.6%
 $233
-9.3%
Southeast
$474,810
-4.5%
 $346,273
36.1%
 $258,900
5.1%
 $208
11.8%
Laurel Hill
$463,455
2.1%
 $308,894
0.9%
 $344,500
8.7%
 $171
-6.6%
Fox Hollow
$426,589
-1.2%
 $280,692
-3.2%
 $280,000
2.8%
 $156
-1.3%
Cal Young
$423,444
-
 $401,136
15.5%
 $394,500
36.5%
 $186
6.9%
Western
$415,690
2.3%
 $277,726
0.2%
 $223,750
-12.0%
 $157
-
Autzen
$376,121
-8.7%
 $332,359
16.1%
 $302,500
20.5%
 $172
0.6%
South Hills
$363,499
2.7%
 $272,542
-10.1%
 $288,000
3.8%
 $151
-10.7%
Friendly
$322,733
6.9%
 $233,437
-17.2%
 $244,590
-10.1%
 $160
-2.4%
Whiteaker
$315,000
-
 $220,000
-2.0%
 $290,000
34.9%
 $124
-33.7%
Harlow
$314,088
1.5%
 $274,269
2.8%
 $257,900
-1.8%
 $177
12.7%
West Eugene
$272,732
-0.4%
 $224,728
-4.5%
 $208,250
-13.2%
 $188
-1.6%
Bethel-Danebo
$204,176
-2.6%
 $205,623
1.8%
 -
-
 $153
-1.9%
Downtown
-
-
 $494,500
92.7%
 $494,500
63.2%
 $254
32.3%
Market District
-
-
 $131,000
-52.4%
 $131,000
-52.4%
 $260
41.3%*
University
-
-
 $510,000
45.5%
 $510,000
47.0%
 $270
9.8%

(Graph provided by Trulia, and sales data obtained by trulia through independent license)

So in a nutshell, while everyone is speculating on what effects this will have on overall market appreciation, I believe we are going to see less competition on lower end of the spectrum properties from buyers who are not qualified. And, as we all know, less competition will cause prices to stagnate or even drop in those markets.

At Team Thayer, we believe that the markets typically not dominated by subprime loans will continue to flourish. Investors may need to explore options other than purchasing cheap flip houses. With your best bet for high appreciation on the higher end, it will take a little more commitment financially to be a real estate investor. Overall, I think that we have enough qualified buyers for the current surplus in inventory in Eugene, and we will survive this crisis as we have every other, with small adjustments and positive overall gains.

Have you looked at your city data to analyze the effects that subprime might have on your market. Your clients might be asking you about this soon!

*Not quite sure though why we had such huge gains in price per sq. ft in the Market District where we suffered -52.4% depreciation.

Posted Thursday Mar 15