When the real estate markets begin to head south, why do some markets decline faster than others? Are their contributing factors that precipitate demand elasticity in some areas, while other neighborhoods appear to be more inelastic? Would this information be important to you if you were in the market to buy a new home, or is it not one of the factors most people consider when making a purchase?

In real estate the old adage was to buy the least expensive home on the best street. Most home buyers have a particular budget in mind when they shop for a home and what they can qualify for in terms of a loan and house payment. At least these days they do, the banks are seeing to that.

Neighborhood Value Considerations

Why does South Pasadena real estate seem to hold its value better than Pasadena?

1. Number of households -with So Pas having approximately 1/5 the number of housing units there is less diversity and much more homogeneity. Pasadena had better opportunities for entry level home buyers due to its history of lower median prices, while South Pasadena has been more of a move up market.
2. Distressed Properties – more housing units in Pasadena and lower entry prices have resulted in more properties in the foreclosure process, depressing home prices in the area.
3. More Equity, Less Leverage -when home buyers move up, they typically put more of their own money into the transaction meaning less volatility in market ups and downs.
4. Public Schools – schools in So Pas enjoy a very good reputation. Does a correlation exist between high home prices and good public schools? A recent comment by one of our readers made an excellent point about public schools. It would be interesting to see the effect on Pasadena home prices if the public schools had the same reputation as South Pasadena.
5. Other factors – neighborhood amenities, (retail, worship, topography, traffic, local services) and crime statistics can also have a role in the overall purchase decision, however these things may be more subjective to a large degree with the exception of crime in an area. If a home buyer is concerned about neighborhood crime, it is always a good idea to talk with the local police department.

When markets are bullish, we see prices rise across the board with no real concern of quality or value. The tech bubble comes to mind, followed by the real estate bubble. However when prices begin to fall, neighborhoods or cities that successfully address the above criteria will be less susceptible to market gyrations.

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