In his latest blog entry, Rich Toscano at Piggington.com looks at dynamics of different price tiers in San Diego and makes an observation that all three tiers appear to have converged by early 2009. He then concludes that the recent rebound in the lower tiers must have been caused by government stimulus rather than economic fundamentals.
Whether or not government stimulus had much impact on prices, that I can not say. I also can't comment on tiered Case-Shiller numbers, since I never was able to reproduce them myself. I do want to make a point that it's inaccurate to claim that relationships between prices were back to what "prevailed before the era of reckless mortgage finance".
Differences did exist, and they were severe. By mid-'09, there were parts of the county where prices were up 80-90% or more compared with early 2000 (these were mostly in the top tier), and there were those where prices were up only 20-30% (usually in the lower tier, though there were deviations.)
The following crude map should illustrate the point. It shows approximate price changes from January 2000 to July 2009.
Notice a red band along the coast west of the I-5. As of mid-2009, places like Del Mar, Solana Beach, Pacific Beach, all had "effective Case-Shiller" above 190 (meaning that a typical detached property in the area gained 90% or more in value since 2000). Hillcrest was at 185 and Rancho Penasquitos was at 180.
At the other extreme, we have dark blue areas inland and south of downtown. Some of them are generally thought to be poor and dangerous (zip code 92113: 120), others are too out of the way to attract prospective buyers with jobs near the coast (Valley Center: 133, Ramona: 136), but, for one or the other reason, they were all driven down towards or below historical trend.
Now, what is behind the lower tier rebound? The first-time buyer tax credit and low down payment FHA loans may certainly play some role. However, we're seeing strong rebound even in areas where FHA-equipped first time buyers generally fear to tread. Median FICO score of a FHA buyer is above 690 by now. It's hard to imagine throngs of FICO-700 homebuyers rushing to capture properties in Logan Heights and Spring Valley.
We do hear tales of prospective homebuyers struggling to compete with real estate investors. It could be that the relentless influx of subprime foreclosures brought prices in some areas low enough to make sense from rental cash-flow standpoint.
As evidence towards that point of view, depressed areas where properties are not easily rented out (Jamul or Valley Center) do not seem to experience any kind of rebound at all.