Lower-priced homes, which fell the most in price during the housing bust, are showing more zip as the housing market strengthens.
In the 12 months through October, the nation's least expensive homes have seen prices rise 10%, vs. 7.6% for the most expensive homes, market researcher CoreLogic says.
"The lower you go, the better the performance," says Mark Fleming, CoreLogic's chief economist.
Other real estate research points to strengthening at the low end, too.
Zillow's third-quarter data show the least-expensive homes up 1.7% in value from the second quarter vs. 1.8% for the most expensive homes. The gap between the two used to be wider. Zillow's first-quarter 2011 data show the least-expensive homes down 2% from the prior quarter, vs. a 1% drop for the most-expensive homes.
"The bottom tier, which has been persistently weak, has now pulled even with the top tier," says Stan Humphries, Zillow economist.
Year over year, its data show the highest-priced homes were up 3.7% in October, vs. 2.4% for the lowest-priced homes.
Zillow breaks the market into three price buckets based on local prices. In high-priced San Francisco, a bottom-tier home for Zillow is under $338,950. In Phoenix, a bottom-tier home is under $99,650.
CoreLogic separates the market into four price groups based on local medians. The two middle tiers were up more than 8% for the year through October, it says.
Evidence that prices are rising at similar rates in all tiers suggests that a nascent housing recovery is "broad based in a lot of markets," says Patrick Newport, IHS Global Insight economist.
The strengthening in the market's low end has multiple drivers, including:
• Investors. They buy cheaper homes because they're better money makers as rentals, Fleming says.
Phoenix is a hot investor market where rentals account for almost a third of sales, says economist and real estate consultant Elliott Pollack. The under-$150,000 market now has just a two-month supply of homes for sale, vs. a 12-month supply for homes above $1 million, Pollack says.
"All of the pressure is at the low end," Pollack says.
Bottom-tier homes in Phoenix posted a 24% year-over-year gain in price in October, vs. a 17% rise for top tier homes, Zillow says.
• Fewer distressed sales. Distressed homes peaked at 33% of home sales in January 2009 but had fallen to 20% of sales in September, CoreLogic says. Fewer distressed sales may affect prices more at the low end of the market because higher-income households have more means to avoid a distressed sale, Humphries says.
A stronger economy is also boosting household formation, which tends to happen more at the low end of the market, he adds.
Nationally, the least-expensive homes are down 32% from their peak, vs. 21% for top-tier homes, Zillow's data show.
Its third-quarter data show bottom-tier homes appreciating faster than top-tier homes in eight of 25 of the biggest markets: Phoenix, Miami, Sacramento, San Diego, San Francisco, Riverside, Denver and Pittsburgh.