In an earlier post we presented housing price betas for 20 large US cities using the Case-Shiller home price index. (See Case-Shiller housing price index and city price betas - Each city has a different risk profile.) Home price betas will differ markedly by city.
Case-Shiller also provides city home price data based by pricing level or tiers. Each city has three pricing tiers, low, medium, and high. This allows us to look at the appreciation in the low-end of the market as well as the high-end. One may assume that high-end homes would be subject to more risk and show greater housing betas. You would be wrong.
Using the same methodology concerning for forming home price beta, we find that the low-end markets are often more volatile and have higher home betas. City housing price appreciation will be correlated around tiers, but there is still significant variation.
It is noticeable that the losers from the breaking of one housing bubble may be different than the next one. Homeowners who are the most levered may be at the most risk.
Buying a low-end home is riskier than buying a high-end home. The dollars at risk may be greater for the high-end, but the return changes and drawdowns are greater for cheaper low-tier homes. The low-end buyers will be at more risk than high-end buyers if the housing market slumps from a Fed interest rate increase.
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