Entry-level markets take off in Golden State

August 15, 2001

La Jolla, CA.--Entry-level homes in California have started going up in value at a faster rate than their more expensive counterparts, reversing a seven-year trend where the price gap between inexpensive and expensive homes widened, a real estate information service reported.

The median price paid for homes in entry-level markets was $138,000 in June, a record and up 15.0 percent from $120,000 for the same month a year ago. The median price paid for homes in high-end markets was $422,500, up 2.8 percent from $411,000 for June last year, according to DataQuick Information Systems.

Appreciation rates in high-end markets were consistently higher than in entry-level markets from June 1994 through December 2000.

"There are regional differences and issues of market mix here. Bay Area homes are more expensive than anywhere else, and the Bay Area’s economy recovered before the rest of the state," said Mike Ela, DataQuick president.

"The fact remains that the gap between haves and have-nots widened during the 1990s, and no matter how you cut it, that was reflected in the real estate market. The silver lining was that affordability in entry-level neighborhoods improved," he said.

Prices for high-end homes hit a recession low of $245,000 in February 1995. Home values then rose steadily and the median reached $422,500 last November where it has stayed.

Entry-level homes hit their low in February 1997 at $93,000 before rising to June’s peak of $138,000, DataQuick reported.

While the trend reversed earlier this year, over the long term high-end homes have appreciated much more than entry-level homes. June’s $138,000 median for entry-level homes was 15.0 percent higher than $120,000 for June 1991. The $422,500 median for high-end homes was 49.3 percent higher than $283,000 ten years ago.

High-end homes were 118 percent more expensive than entry-level homes in December 1992, $225,500 to $117,000. Eight years later, last December, they were 231 percent more expensive, $420,000 to $127,000. In June it was 206 percent, $422,500 to $138,000.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Home categories were defined using the upper and lower 25 percent of the state’s neighborhoods where characteristics for first-time or high-end purchases prevailed.

Sales counts for homes in entry-level markets are up compared to a year ago, while they are down in more expensive markets.

The typical entry-level buyer in California committed to making a monthly mortgage payment of $848 in June. That was up only slightly from $821 for the same month a year ago, and well below $981 for June ten years ago when interest rates were higher. Those numbers do not take into account inflation of more than thirty percent during the ten years.

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