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The effect of school performance on local home prices

March 21, 2016 — Written by Eric Wu

If you’re a parent and homeowner in Phoenix, you already know how important it is to live in the best school district you can afford. In fact, all Phoenix homeowners should understand the relationship between schools and home prices across the Valley, since an increase or decrease in your school’s ranking can affect the value of your most valuable asset.

Here are 3 critical insights to be aware of when determining where to purchase your next home:

1. Parents pay more for a marginally better school rating… a lot more.

Research has shown that school quality has a disproportionately high impact on housing prices, particularly at the high end of the market where homebuyers are much more sensitive to school ratings and willing to pay top dollar for access to the highest-rated schools. Even with open enrollment in Phoenix, the correlation between home value and school quality remains high, and parents put such a premium on houses located in great public school areas that it can add thousands of dollars in value to a house.

At Opendoor, we analyze housing market data and pair it with human insight to give homeowners a full market offer on their home, so we’re interested in the nuances of how school rankings impact the bottom, middle and top price buckets of the Phoenix housing market. Although the relationship between highly rated schools and housing prices is well known, we wanted to know just how strong that relationship is in the Phoenix area and if there are any actionable insights to share with homeowners looking to maximize their home’s “school quality value”.

We ranked the most expensive high school attendance areas in the Phoenix metro. The most expensive is Chapparal High School, where the median home sells for $530,000. We also found that homes located in school enrollment areas with higher test scores sell for more than double homes in enrollment areas with average or lower scores.

The table below shows the median price for houses sold in 2015 in each high school attendance area where twenty or more houses were sold. The table also includes each high school’s GreatSchools.org rating a measure based on the school’s test scores, college readiness, and other variables.

Which districts are most expensive

The range of housing prices between enrollment areas is large. The median 2015 price for a house in the Chapparal High School and Cactus Shadows High School enrollment areas, the two most expensive high school enrollment areas in the Phoenix area, went for five times more than homes in the enrollment areas with the lowest median costs.

The list demonstrates that houses in areas with highly rated schools are significantly more expensive. All of the top 15 high school attendance areas in terms of housing prices have a GreatSchools.org ranking of five or better, while all but one of the bottom 25 school attendance areas had a rating of below four.

When we re-did the analysis with only three bedroom houses, the order of the schools and magnitude of the difference did not change significantly. This demonstrates that people are paying for the access to great schools – not for a larger house.

The large disparity in the real estate markets of neighborhoods with high and low ranked schools led us to further examine just how much it costs to be near high schools of varying academic strength. The following chart shows the median price for all houses in enrollment areas of different ratings. There were no high schools in the area with a rating above eight.

Median house price by school

Houses in areas with a GreatSchools rating of eight sold for more than double those in areas with schools rated less than four. It is interesting to note there is almost no difference in the median price of houses in areas with schools given a score of one, two or three. This follows previous academic research that found that the impact of school quality on housing prices is “nonlinear” – home buyers at the high end of the market are more sensitive to school ratings.

2. You can still purchase a home for under $200,000 and attend a highly ranked high school.

We know it’s expensive to live in an area with a highly rated high school but are there neighborhoods in which you can get a “good deal”? We found several areas where it’s significantly less expensive to live near a highly-rated high school. This next table shows the ten least expensive attendance areas that have a school rating of six or higher.

Least expensive house highly rated school

The least expensive attendance area with a rating of six or above is the Apollo High School attendance area located in Glendale. At $150,000, the median 2015 price for a house near Apollo sold for almost $100,000 less than the average house in the enrollment area of a high school with a six rating. Sunrise Mountain High School’s attendance area is the least expensive for a school with a rating of seven or greater. The median price in the Sunrise Mountain enrollment area of $228,140 is a little over $70,000 less than what you would normally have to pay to live in a neighborhood with such a strong school.

3. Elementary schools matter more than high schools.

Of course, it’s not just high schools people care about. When we examined the prices of households in certain elementary school enrollment areas, the range of housing costs grew even wider.

Which elementary districts are most expensive

The median price of a home sold in the Cherokee Elementary School attendance area in 2015 was $788,500. Cherokee Elementary School, which has a 10 out of 10 rating from GreatSchools.org, feeds into Chaparral High School, which has a median house price of $530,000. The fact that the median house in the Cherokee attendance area sold for $250,000 more than the median house across the entire school system shows the wide range of prices that exists even within the same high school catchment area.

Elementary school ratings have an even stronger correlation with real estate prices than high school ratings because the variance in school ratings is much higher. The majority of the elementary school areas with the most expensive houses are either rated a nine or ten by GreatSchools.org. In contrast, only one of the ten elementary schools in the bottom 10 in terms of 2015 median house sale price had a rating above three. Undoubtedly, if you want your child to attend a great public elementary school, it can be incredibly expensive to gain access by buying a house in the right location.

Parents with financial resources often choose to prioritize education over everything else, meaning the relationship between highly-rated schools and expensive homes is strong because education is of paramount importance to parents. While there still remain affordable areas with strong schools, the parental desire to give their children the best possible education likely means those areas will soon increase in price.

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