The Real Deal

Prices for entry level home are on the rise

By Jean Newton

Entry-level homes in California are rising in value at a faster rate than their high-end counterparts, reversing a seven-year trend in which the price gap widened between inexpensive and expensive homes, a real estate information service reported.

According to DataQuick Information Systems, the median price paid for homes in entry-level markets was a record $138,000 in June, up 15 percent from $120,000 for the same month a year ago. The high-end median price paid for homes was $422,500, up 2.8 percent from $411,000 for June last year.

Appreciation rates in high-end markets were consistently higher than in entry-level markets from June 1994 though 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."

High-end home prices hit a recession low of $245,000 in February 1995. Then, home values rose steadily until the median reached $422,500 last November, where it has stayed. On the other hand, entry-level homes hit their low in February 1997 at $93,000 before rising to June's peak of $138,000, Data Quick reported.

While the trend reversed earlier this year, traditional high-end homes have appreciated much more than entry-level homes over the long term. Today's median price for high-end homes was 49.3 percent higher than 10 years ago.

The gap between inexpensive and expensive homes topped out last December with high-end homes 231 percent more expensive then entry-level homes. In June, the difference was 206 percent, $22,500 to $138,000.

DataQuick 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 of entry-level homes are on the increase compared to a year ago, while sales are down in the 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 10 years ago when interest rates were higher. These numbers do not take into account inflation of more than 30 percent during the 10 years.

While these statistics reflect a statewide look, it's important to check in with a local Realtor for specific information about local statistics and market trends. The Silicon Valley Association of Realtors, a 3,000-Realtor-member, nonprofit trade association, provides demographics and Realtor information on its website at www.siliconvalley-realtors.org.

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Information provided in this column is presented by the Realtor members of Silicon Valley Association of Realtors. Send questions on any topic to: Real Deal, c/o SILVAR, 345 San Antonio Road, Los Altos, CA 94022; call 650.949.9115; or email ppompei@siliconvalley-realtors.org.

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