Areas with population, job growth avoiding housing market pain
By now, it's clear where most of the pain is being felt in the US housing market.
Rising foreclosures and financing rates, a growing housing inventory, and tightening credit are hobbling areas that once led the nation in the home boom.
If you study the home-price patterns in the Aug. 30 report from the Office of Federal Housing Enterprise and Oversight, you can see gains in states where prices are lower, compared with major metropolitan areas, and that have job growth and population increases. The agency is the watchdog of
Population and job shifts can be red herrings, though. It's clear that some of the steepest declines are hitting where housing inventory is highest and subprime financing was prevalent.
Yet many of the hardest-hit markets are in states where price, job, and population growth was robust. California, Florida, and Nevada are now experiencing price declines.
Of the bottom 20 markets monitored by the oversight office, 11 were in California and six in Florida.
Former hotbeds such as Merced, Calif., and Sarasota, Fla., experienced price declines from 6 percent to 8.6 percent for the year ended June 30, the agency reported.
Nationally, the picture is getting darker. The number of Americans signing home sale contracts for previously owned homes in July dropped the most since records began six years ago, according to the National Association of Realtors, a Chicago trade group.
Overall, prices fell 3.5 percent in 20 major areas in the second quarter, reports S&P/Case-Shiller, the largest drop since the group started compiling the index in 2001.
It's no surprise that where unemployment rises, housing prices shrink. The Detroit area, stung by layoffs from US automakers, not only posted an 8.4 percent jobless rate in July - it was 4.6 percent nationwide - but home values retreated 1.4 percent for Michigan as a whole in the second quarter, ranking it among the worst markets.
Owing to the mobility of occupations through broadband access, many workers moved from the priciest areas in California and the East Coast to the Rocky Mountains and Southern states.
Areas that support job growth through innovation - "brain burbs" - are the best long-term investments because affluent, educated, and productive homeowners spread the wealth and their neighborhoods appreciate.
You can often conclude that where the knowledge worker base is growing, so are home prices.
Wenatchee, Wash., for example, nestled in the eastern foothills of the Cascade Range on the banks of the Columbia River, is fast becoming a brain burb of congested Seattle to the west.
With a reasonable cost of living - median home price is about $250,000 - Wenatchee catapulted to the top of the oversight office's price gainers, rising 23 percent in a year. It also has a 3.9 percent jobless rate, below the US average.
You also need to consider the spread of prices between brain burbs. Charlotte, N.C., a robust financial services center, is much less expensive than the Northeast corridor.
It has grown about 48 percent over the past decade in the Case-Shiller index through June 30, lagging the national appreciation rate by 72 percentage points.
Where should you avoid? Places that produce little in the way of innovation and were havens for speculation. Miami, Naples, Fla., and Las Vegas might be most vulnerable to more housing-price erosion.
Patterns can deceive. It's always a fool's game to look at past performance and think it represents a long-term trend. Just as millions of homeowners and lenders were convinced that the boom would continue unabated, there's no predicting how long or how deep the housing recession will be. You have to buy carefully in any area. If population or job growth stalls or recedes, the local housing market will certainly hiccup.
John F. Wasik is a Bloomberg News columnist. He can be reached at jwasik@bloomberg.net.
