1st Tier v. 2nd Tier Communities

In answer to a question I received from a blog subscriber about the differences between certain communities in the Central Valley:

As the market got hotter and hotter, more and more builders began to build in what I call “second-tier” communities. To me, a second-tier community is one where people decide to buy primarily because the homes are less expensive compared to first-tier communities. For example, people began buying in Patterson/Newman primarily because it was significantly less expensive than Tracy. Same goes for the Lathrop area as well. Of course, I am generalizing, but that was the main thrust for much of those second-tier communities. Please understand, I’m not saying they aren’t great places to live and raise a family—I’m just saying that a majority of people tend to prefer the first-tier communities if they could afford it. The trend is even more pronounced when going south into Merced county—people generally were buying homes in those areas because they were less-expensive compared to pricier communities nearby.

For example (when the market was hot), a person commutes to the Bay Area and would like to live in Tracy. Problem is, Tracy is too expensive for them to get the home they want. But then they drive a little further and see much larger homes in Patterson for a much lower price, and they buy them instead. Here’s today’s problem with second-tier communities: now that person looking for a home in Tracy CAN afford it in Tracy. Therefore, there is no reason for that type of buyer to go further out to Patterson in order to afford it. That means that top-tier communities like Tracy will recover better and more quickly than second-tier communities, because now they’ll just buy where they really wanted to, which for many is Tracy in this example. Does that make sense?

The other reason second-tier communities are tougher right now is because new-home builders are encountering that very same problem, which means they’ve had more “standing inventory” (finished homes with no buyers) to get rid of. The more standing inventory there is in a community, the bigger the price dive. By the time builders get finished dumping their inventory homes, a new price floor has been established, and everyone wants to buy their home at those types of prices.

So places like Patterson have taken a big hit (as you have obviously seen). Oakdale is still a top-tier community according to buyer preference, but everyone with an existing home is struggling to compete against all the homebuilder discounts and their standing inventory and large-scale projects that they are continuing to work through out in the Bridle Ridge area. It’s just been, and continues to be, overbuilt in that area.

In general, many areas have given up the gains they’ve had in the last 18-24 months, just like you have seen.

Comments

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New Web Giant Launches Portal Site – Plans on Dominating Web-based Real Estate Sector

04/12/2007
Chicago, IL based Profertee Realty Group, inc launches its much anticipated real estate portal site (www.profertee.com) Monday morning. Partnering with Melville, NY based American Home Mortgage(NYSE: AHM) and Home Buyers Marketing inc, Profertee’s site is boasting access to over 3.6 million real estate listings nation wide, as well as various premium new construction developments located in Orlando, Las Vegas, and Chicago, just to name a few. Profertee’s mission is to offer a free, user-friendly real estate shopping experience, while also providing additional value-added features such as investment groups, home-valuation tools through Zillow integration, useful real estate investing strategies, and free mortgage quotes through American Home’s retail channels. “We are truly a one-stop-shop”, says Profertee CEO Rhoniel Daguro. “The site has everything a user could want, but we really wanted to feature the premier new construction developments. That is something that no one is really organizing online, and we’ve taken things one step further by forming buyers into investment groups, giving them access to considerable savings at the various developments.”

Profertee also provides local one-on-one services through the thousands of realtors approved with Home Buyers Marketing, inc. Users can create an account on www.profertee.com to search over 3.6 million listings for a home anywhere in the US and still deal with a local partner agent once they are closer to buying. It is in this way that Profertee is providing the best of both worlds: the power of the internet + traditional local realtor partners. Navigate to www.profertee.com today and test drive their site. Also stay tuned for our follow up segment on Profertee in June.

Profertee – Prosperity in Property: Exclusive New Developer Condos http://www.profertee.com