Sunday, May 15, 2005

Across The US, Housing Prices Are A Crisis

If the number of articles addressing it is any indication, the house price crisis is becoming a mainstream issue. Tennessee, "Roughly 18,782 households moved to Davidson and seven surrounding Midstate counties in 2003. Of those about one-fourth moved from Florida, California and the Northeast."

"It's difficult to assess what impact buyers from high-priced areas are having on the local housing market..it would likely raise local property values. 'It keeps prices higher, because they see the houses here as so cheap,' Charles said. 'People are more willing to pay full price, or even offer 102% or 103% of a selling price just to get a deal done.'"

Virginia, "'They've been saying for the last three or four years that this has got to cool off, but nobody has seen it cool off yet,' he said. Tricord's Jones describes that turn of events as a 'crisis' for Spotsylvania."

Auburn, CA, "Workers like firefighters, law enforcement personnel, nurses and teachers who make up the backbone of any community will also be forced to seek more affordable areas in which to live. 'There will be difficulty in obtaining an employee base in all salary ranges,' Auburn City Manager Bob Richardson said."

Baltimore, "Though the booming housing market is good for builders and real estate agents, county employees such as teachers, police offices and firefighters say they cannot find affordable houses." It's not just government employees that are struggling in the housing bubble.

28 Comments:

At 11:50 AM, Anonymous Anonymous said...

for the last time, i am sick of hearing teachers and police and firefighters complaining about the high costs of housing in a given area.

they've got two options

1) MOVE somewhere where they can afford to live

2) get a decent paying career and live wherever they want

what is so difficult for them to understand?

 
At 11:52 AM, Blogger goleta said...

This comment has been removed by a blog administrator.

 
At 11:54 AM, Blogger goleta said...

"Workers like firefighters, law enforcement personnel, nurses and teachers who make up the backbone of any community will also be forced to seek more affordable areas in which to live. 'There will be difficulty in obtaining an employee base in all salary ranges,' Auburn City Manager Bob Richardson said."


When most workers who provide urgent services are an hour away from the expensive areas, the only outcome is hyper inflation. When you lock yourself out of your home and the only locksmiths available are an hour away, you'll have to pay for their travel expenses. Instead of $90 to unlock your doors with 10 minutes of traveling, you'll have to pay 2 hours of traveling and that means the cost can be close to $200.

The hyper inflation is the least of the problems. if firefighters, cops, doctors, and nurses are an hour away, by the time they arrive, most damages are already done.

 
At 12:03 PM, Anonymous guesswho said...

I live in marin county, ca, just north of SF. Very, very expensive and always has been. My small town is building a multi-unit project that will create subsidized housing for teachers, police, firefighters, etc, who are priced out of our market so that these necessary folks can live here.

This is something I think we will see in many locales. I was up in Banff (W. Canada) last summer and there are similar projects up there. But it's not just for essential employees, it's also for low-wage workers like bartenders, waitresses, housekeepers, etc. The hotels and restaurants are struggling to find workers because there is no place for them to live.

Most of the new construction is mega-mansions and rustic retreats for the rich---much of it 2nd or 3rd homes. Believe me, these people don't want to clean their own houses, do their own yardwork, style their own hair, wash their own dogs, bag their own groceries, etc.

Many parts of this country have some serious decisions to make in the near future.

 
At 12:10 PM, Blogger SEO Guru said...

I was going to say its a good thing that i live in the UK but its not really. House prices have gone through a huge boom lastely and i'm expecting them to go belly up anytime soon. Which to say the least is crappy...

 
At 12:17 PM, Blogger deb said...

The affordability gap cannot continue. Only 5% of homes are affordable to median income households (not people, households) in LA. And against record low interest rates and unprecidented creative finance.

This is not sustainable. Who will buy these houses?

Yes, it is a crisis, but it will not be solved by building special housing for those who were silly enough not to be a homeowner by 1998. It will be solved by existing home prices coming down.

 
At 12:19 PM, Anonymous Anonymous said...

Let me say this:

You WANT teachers, policemen, firemen, and other crucial service providers to live in your community. I'd think the reason why would be self evident. But I guess not.

 
At 12:20 PM, Blogger goleta said...

Technology companies in the Bay area, Boston, SD, or other expensive areas can't get people to move in and are forced to move their operation to places their employees are moving to. Like many of my colleagues, I'm moving out of California and my company is now forced to set up a new lab whereever I'm moving to.

If the bubble continues, the only outcome is there will only be very rich people and the ones who serve them left in California. Middle class is now an endangered species.

 
At 12:26 PM, Blogger deb said...

"If the bubble continues, the only outcome is there will only be very rich people and the ones who serve them left in California. Middle class is now an endangered species"

Then, that would be the end of the bubble, because there would be no one left to buy the houses. A house is only worth what a buyer is willing and able to pay. And we know "able" is stretched to the absolute limit here in CA.

 
At 12:35 PM, Anonymous Anonymous said...

Look RE will implode. The days of having your community workforce commute 30 miles to
service your desires will no longer work.
We are going to see oil hit over $100 a barrel as Peak Oil hits. McMansons will be unaffordiable except for the very rich. RE prices will plummet. Workers will have to live closer to their jobs.
see http://www.peakoil.blogspot.com/

 
At 12:54 PM, Blogger Ben Jones said...

I don't know why the writers are so sympathetic to government employees and not to the rest of us. I agree with Deb, subsidized housing skirts the real point, which is houses cost too much. If it is a problem, the Fed or congress could bring prices down in months by requiring 20% down.

The bubble will collapse under its own absurdity.

 
At 1:09 PM, Anonymous Anonymous said...

there is no national bubble, there are still few places where one can still afford. looks at this house:
http://www.onepercentusa.com/Listing.asp?ListingID=439
you'd have to pay 4x that in Boston suburbs, yet the FED people (BTW they are all set and can care less you can not afford anymore)
do not see a bubble. You are precisely correct a 20% down will collapse the bubble; all newbie speculators will be priced out on the spot killing the speculative demand in an instant. Also it is much more risk if you have to put 20% down - if it tanks they plan to simply return the keys leaving those stupid banks to worry about selling. They risk absolutely nothing right now, only their credit history, many of whom don't actually have a good credit anyway. Some loans are made on other people they setup to avoid ruining their own credit. There is a big number or faudelent loans going on. See why normal working people are priced out and not only priced, but simply scared to buy expecting it all to collapse pretty soon.

 
At 3:35 PM, Anonymous Anonymous said...

"We are going to see oil hit over $100 a barrel as Peak Oil hits. McMansons will be unaffordiable except for the very rich. RE prices will plummet. Workers will have to live closer to their jobs."

While it's true that Peak Oil will hit relatively soon, I don't paint such a doom-and-gloom scenario. What I see is the end of the commuter culture (YEAH!) and return to near-home employment. The suburbs won't disappear, rather they'll convert a few houses into a communal office, a market and a post office. The norm, by cost or law, will be to telecommute.

Transportation (oil) demand will fall drastically and the remaining oil will last longer than predicted. There will also be enormous booms in alternative energy, including numerous speculative bubbles and fortunes to be made along the way.

Peak Oil is a good thing, in many ways. Risk presents danger. Risk presents opportunity.

 
At 4:16 PM, Anonymous Anonymous said...

Man... i can't stand hearing about teachers and their low salaries... they get excellent health insurance, great 401(k) options, and a state pension, when they retire... and by the way, retirement is only 20 years of service... plus they only work 185 days in a year and yet receive 50K in salary... why is that so bad? if the teachers are so unhappy, maybe they should think about getting a part-time job for the other 180 days or so of the year... and work year-round like the rest of us...

 
At 4:20 PM, Anonymous Frank said...

The first comment is moronic especially in light of the VA article. We are talking about Spotsylvania county!! That's semi-rural. Obviously, it is due to spillover from closer in counties.

But why can't these people rent for the near term? I saw an ad for a place in Gainesville, brand new, all the bells and whistles. It didn't even say a price only "Price negotiable". That tells you how bad the rental market is in the outlying DC area. Rents in DC proper and close-in Arlington have actually increased. You see a lot of overpriced places on the market based on people having made recent purchases and trying to minimize the negative cashflow. In Arlington they appear to be getting the asking price.

Finally,
"Mike Jones, principal owner of the Tricord Cos., noted that most Americans derive the bulk of their net worth from their homes. Helping middle- and working-class people buy a first home will generate "instant wealth" for them, especially in a surging real-estate market."

HA-HA-HA-HA!!!! More like bankruptcy if the buy an overpriced house in Spotsylvania. One the market turns then you won't be able to give away your house in this area. All the increase is driven by the close in DC markets.

 
At 4:35 PM, Anonymous Frank said...

Some of the Prechter acolytes that post here should step back and think.

Oil is in a bubble just like real estate. All hard assets have been inflated severely since 2001 due to the credit bubble. Thus oil, copper, houses, etc. have all appreciated strongly since 2000-1.

Certain assets like oil (due to percpetion of terrorism and the China boom) and houses in LA and DC (due to high intrinsic demand) have seen excessive "bubble" formation due to the toxic mix of easy money and high intrinsic demand.

Oil just like RE has a strong tendency for "bubbling". The BS I hear about supplies running out rapidly due to China and whatever else is reminiscent of my childhood in the 70s. It was rubbish then and it is rubbish now.

I think the drop in oil last week and the increase in dollar is part of a mid-term trend into 2006 due to contraction in money supply growth and global credit. This started months ago, but there is a lag effect up to a year in terms of impacting the markets.

Thus, my prediction is a strong dollar, drop in oil price and downturn for RE.

And that's how I have lined up my ducks. Selling off foreign currencies and stocks. The only RE I own right now(in a European bubble market) has too strong sentimental attachment and will not sell ever. Thank God that real estate assessments are not market based. Someone near me sold their real estate for 4X my taxation value and the property (eyeballing) is half the size!

 
At 4:56 PM, Anonymous so. cal serf said...

If bubbles are largely maintained by psychology, then of course it follows that they will go away once the prevailing psychology changes. It does seem to me that we might be seeing big changes as reflected in the increasing number of articles in the media each week that don't just cheerlead but instead express concern for the possibility of overheated markets, the relaxing of lending standards and the lack of affordability. This raises the question: How do we know when we've reached the tipping point?

The answer, of course, is that we can't really know. But that shouldn't stop us from trying. In this spirit, I hereby present the "Google bubble-to-boom index"!!!!! (patent pending)

This is a quick & dirty analysis where I counted the number of hits on Google news search for the following two search categories:

"housing boom" location:usa
"housing bubble" location:usa

The table below presents results for the last four weeks. This is highly unscientific of course so take it with the requisite grain(s) of salt.

Week | #boom | #bubble | bubble-to-boom-ratio

(Apr.17-Apr.23) 66 44 .67
(Apr.24-Apr.30) 83 63 .76
(May 1-May 7) 116 49 .42
(May 8-May 15) 67 99 1.48

In other words, for the last week google returned 1.5 times as many articles containing the phrase "housing bubble" as contained "housing boom". Particularly notable is the HUGE jump from last week to this week, which was the first time there were more bubble than boom articles.

As much as these data make me want to shout, "Where's the after party???!!", there hasn't been a sustained increasing trend; thus, it is possible that this last week is just an anomaly. But let's keep hope alive people!!!

 
At 5:08 PM, Anonymous Anonymous said...

4:56 p.m. - So Cal Serf -- pretty slick analysis. As you say, that is too little data from which to draw a bankable inference, but it is a really nifty idea (as in, I never would have thought to do that). Will look forward to your following this further in time. Thanks.
Chip

 
At 6:29 PM, Anonymous great caesar's ghost said...

Good work so cal serf. As Shiller and other bubble-conomists point out, herd psychology is the most important factor in the creation and deflation of bubbles. An increase in the number of media stories which express caution about RE should start to affect the market in the opposite direction that those "new economic paradigm" stories make everyone one feel they're missing out if they don't buy now did.

On a more local level, I'm seeing the effects of the seemingly weekly announcement of a new high end condo development in the Twin Cities. Namely, the absorbtion rate for 200k+ condos is now over 5 months and has grown noticeably y/y. I'm surmising that with every announcement of a new project, more buyers are waiting to buy. They don't want to be tied up in last year's "it" place when they know that something better is surely coming along in a couple of months or so. Buying a two year old condo is like buying last years 5 megapixel digital camera that you know is going to be made obsolete by next year's 8 meg model.

 
At 7:41 PM, Anonymous Anonymous said...

Has anyone considered emailing Greenspan or someone and telling him he's destroying affordability for the average Joe!
This has got to stop. Not everyone is a realtor...

 
At 7:47 PM, Anonymous Anonymous said...

"I live in marin county, ca, just north of SF. Very, very expensive and always has been."

I'm a third generation resident of Marin, and I can assure you that this statement is not correct - not even close. Marin was a comfortable place for farmers and middle class families until about the mid-1970's. Then, tens of thousands of people (mostly from the East Coast) decided that they wanted to move here, and that pushed up housing prices to the high levels you see now.

 
At 7:49 PM, Blogger goleta said...

Buying a two year old condo is like buying last years 5 megapixel digital camera that you know is going to be made obsolete by next year's 8 meg model.


You're absolutely right. It's the lands that get appreciated not buildings. Not only are the designs out of date, aging houses have to face termites, leaks, mechanic fatigeue, sun/storm damage, etc that all reduce the value.

 
At 7:54 PM, Blogger Ben Jones said...

7:47 anon,
Thanks for the perspective.

 
At 8:34 PM, Blogger deb said...

"Some of the Prechter acolytes that post here should step back and think."

You haven't read much Prechter. He is looking for deflation across the board and a strong dollar.

I agree, the peak oil posts here are sounding a little extreme. (and, yes, I have read the peak oil argument)

 
At 9:27 PM, Anonymous Frank said...

Sorry, but my strong dollar view is medium term as in a "bear market rally". This is benign credit deflation and best and moderation of money supply growth.

The potential threat is nonsense just like the last scare of 2002-3. Even Japan has avoided real deflation as in a contraction of the money supply. Doesn't mean that you can't have a 20 year RE bear market, which would be a nice, necessary adjustment for the US. Ok, 10 years would be ok.

If the shit hits the fan the easy way is out is to inflate us out of this mess. You require extreme incompetence to spiral into a 1930s depression.

Look, extremist views like Prechter, LaRouche, various Goldbug nutjobs simply discredits the RE bear side. They are simply not founded in reality and rely on conspiracy theories and other nonsense.

Prechter's heyday is now 3 years ago and was part of the scare mongering of the bear (equities) market bottom of October 2002.

Here is a nice rebuttal to Prechter's nonsense of from the fall of 2002:
http://www.mises.org/fullstory.aspx?control=1040

 
At 6:56 AM, Blogger deb said...

I didn't say I agreed with everything Prechter says. I just said he doesn't have any belief in peak oil, but a wide spread "bank credit deflation". I think Prechter's views are a little extreme, but how can we not have some type of credit deflation eventually???

 
At 7:34 AM, Blogger deb said...

By the way, Prechter also believes this is a corrective rally in the dollar (a big one) and that eventually the dollar will go to new lows vs. other currencies. He definitely does NOT believe in any conspiracy theories, but believes all market action is determined by the social mood of the people participating. His views are very compatable with those found on the Mises.org site. Sounds like you may agree with him on more than you think.

His books and writings are very thought provoking. Like I said, I don't agree with it all, but it does make you think, and that's all I can ask from a good book.

 
At 6:40 PM, Blogger lemonfresh said...

Every community needs police, firefighters, and teachers, you moron. Don't you think they deserve a decent place to live? If you don't, I hope you don't have a fire, home school your kids, and are able to protect yourself from crime.

 

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