A+ neighborhoods: Amazing schools, affordable homes

When Vikki and Thane Hubbard went shopping for a house in the Portland area last year, they were willing to compromise on a lot of things, but school quality wasn’t one of them. Keeping their 14-year-old son, Ben, enrolled in Oregon’s highly regarded Lake Oswego school district was their first priority. “We could have gotten a lot more for the money outside the district,” says Vikki of the 1,600 square-foot house the couple bought last November.But, as the Hubbards saw it, the benefit of owning property in a top-rated school district was two-fold: They were not only giving their son access to a greateducation, they were protecting their real estate investment to boot.

The Hubbards aren’t the only parents who prize a good education. Among buyers with school-age children, test scores and student-to-teacher ratios [explore graphic] are often as big a factor in the homebuying decision as square footage and amenities. In fact, all things being equal, buyers are willing to pay a significant premium to live in neighborhoods with better schools, says Donald Haurin, a professor of economics at Ohio State University. In one study, even after accounting for other characteristics that influence home values, Haurin found that good schools in Ohio boosted home prices by as much as $75,000. “Does quality of schools affect home values,” asks Haurin. “The answer is yes, and a fairly large yes.”

Better schools, higher prices

To illustrate the relationship between home values and school quality, Cyberhomes analyzed more then 6,000 U.S. ZIP codes using median home sales prices from Cyberhomes’ parent company, Fidelity National Financial, and school ratings from GreatSchools, a nonprofit organization that compares standardized test scores within states and rates public, private and charter schools one to 10. The result: Median home sales prices in ZIP codes with very-high-rated schools were recently 63 percent higher than those in ZIPs with average schools and more than 95 percent higher than those with low-rated schools.

Economists are quick to point out that schools don’t deserve all the credit (or blame) for price differences. In many cases, the good schools are theproduct of high home values, at least initially. Not only do the schools benefit from increased revenue from property taxes, buyers in these higher-pricedareas tend to be more educated than the general population. Of course, once an area gets a reputation as having good schools, the effect is self perpetuating.Education-minded parents are willing to pay a premium to live in these areas, says Norman Miller, a professor and director of academic programs at the University of San Diego’s Burnham-Moores Center for Real Estate, and that in turn drives up home prices and further improves school ratings. It’s not necessarily that the schools themselves are so superior, he says. It’s that the kids in those schools benefit from positive peer pressure, both at home and at school. In many cases, the better the schools, the bigger the premium.

The high quality of Lake Oswego, Ore., schools influences the area's home values. (Photo: Greg Wahl-Stephens/Associated Press for Cyberhomes)

The Lake Oswego ZIP code of 92603, for example, scores a perfect “10” in the GreatSchools ranking. The median sales price in the ZIP was recently $719,000, according to Cyberhomes. That’s more than two and a half times the median home price for Portland overall. While there are other factors driving up Lake Oswego prices, schools have a pretty big influence on that premium, says Deborah Wilkinson, a broker with Keller Williams Realty. In areas that straddle the Portland and Lake Oswego school districts, she says, comparable houses sell for significantly more if they fall within the Lake Oswego school boundary. “At one point there was a $100,000 difference,” she adds. Many buyers, says Wilkinson, start their home search by identifying neighborhoods with the top schools, and then look for houses within that district. This is even true of clients who don’t have children, she says. “Schools are seen as important for resale value.”

Less risk on the downside

Turns out, schools do have an influence on resale value. “These places don’t necessarily appreciate faster,” says Michael Sklarz, a senior economist forCyberhomes. But when markets are weak, neighborhoods with good schools tend to hold their value better. According to Cyberhomes’ analysis, home prices in ZIP codes with very-high-rated schools have decreased an average of 10.5 percent since their respective market peaks. ZIPs with average schools, meanwhile, are down 13.3 percent while those with low-rated schools have sunk 14.9 percent.

While no area has been immune to home-price declines, areas with better schools tend to have more stable housing markets, where home prices rise and fall because of fundamentals rather than speculation. “They are dominated by owner-occupants rather than investors or flippers,” says Miller. At the same time,demand for homes in these markets has held up better relative to other markets. “A lot of buyers see this market as an opportunity to move into these neighborhoods,” says John North, chief operating officer of Coldwell Banker Schweitzer in Bloomfield Hills, Mich. Assuming they are priced right, houses in these high-quality school districts tend not to sit long.

In many cases, good schools are the product of high home values, at least initially. (Photo: Greg Wahl-Stephens/Associated Press for Cyberhomes)

Studying up on school quality

There are plenty of markets where school quality takes a back seat to other factors, such as ocean views and commute times. You can ask your real estate agent to explain how much, if at all, schools factor into market dynamics, but don’t expect your agent to double as a school adviser. Most agents, in fact, won’t give clients specific information about schools, lest they be held liable if a district gets rezoned or test scores suddenly take a turn for the worse.

Fortunately, statistics are readily available from states, individual school districts and independent sites, such as GreatSchools. Keep in mind that schoolscan change. Look for trends in ratings, policies and funding to see if local schools are changing, for better or worse. “One way to spot trends is to look atwhat parents have to say in the community section of the site,” says GreatSchools spokesperson Dave Steer. Parents, especially in communities that put a premium on education, are a treasure trove of information when it comes to school quality.