While the Case-Shiller index shows
us that, in general, house prices in the United States have improved since the
housing market bubble burst, house price trends vary widely on a state-by-state
level. For the purposes of this posting, I have chosen to set the house
price index to 100 at the beginning of the Great Recession in the fourth
quarter of 2007 and that all graphs show prices from 2000 to the first quarter
of 2014 for all housing transactions.
Let's start by looking at the house
price index a few of America's hardest hit markets, three of which are sun and
sand states and two that are in the rust belt:
1.) California:
From the peak in Q3 2006 to the
trough in Q1 2012, California's house price index dropped by 40.1 percent.
Since the nadir, California's house price index has gained only 24.2
percent, showing that on a state-wide basis, California's housing market index
is at levels last seen in mid-2004.
2.) Florida:
From the peak in Q4 2006 to the
trough in Q2 2012, Florida's house price index fell by 44 percent.
Florida's house price index has recovered a relatively small portion of
what it lost over the six year period, with a gain of only 9.8 percent from its
low point. Florida's housing market index is at levels last seen in early
2004.
3.) Michigan:
From the peak in Q3 2005 to the
trough in Q2 2011, Michigan's house price index fell by 28.5 percent.
Since its low point, Michigan's house price index has only recovered by
11.8 percent from its low point. Michigan's housing market is now at
levels last seen in the second quarter of 2000.
4.) Nevada:
From its peak in Q3 2006 to
the trough in Q2 2012, Nevada's house price index fell by a rather dramatic
55.3 percent. Since its low point, Nevada's house price index has gained
30.7 percent, however, because of its very dramatic fall, it still sits 41.6
percent below its peak.
5.) Ohio:
From the peak in Q1 2006 to the
trough in Q2 2011, Ohio's house price index fell by only 12 percent. Since its
low point, Ohio's house price index has gained very little, rising by less than
1 percent. Ohio's house price index is now at the same level last seen in
early 2002.
It is also interesting to look at the house price index graphs for New York:
...and Connecticut:
Note that both of these states saw relatively mild bursting of the real estate bubble but have also seen very little price correction since the lows experienced after the Great Recession. In the case of New York, the house price index is now at the same level that it was in Q1 2005 and in Connecticut, the house price index is now at the same level that it was in Q2 2004.
Now, let's compare the experience of
Texas. Many economists note that Texas has a land development system that
promotes rather than discourages development. This means that land use
regulations which tightly restrict residential developments in states like
California are less of a concern for developers in Texas
Here is the house price index for Texas:
It is interesting to observe that
the house price index for Texas rose right through the period from 2006 to
early 2009 when it corrected very slightly. From the Great Recession peak
to the "trough" in Q2 2011, Texas' house price index fell by only 4.1
percent, an insignificant correction. Since the "trough",
Texas' house price index has risen by 11.1 percent, bringing the current level
to a new high.
When we read in the mainstream media
that America's housing market is on the mend, we need to keep in mind the data
from this posting. The recovery in the housing market has been very
uneven and while prices have shown upward moves, geographically, much of the
nation has seen relatively little improvement in residential real estate
valuations except in certain key markets. This is particularly apparent when you see that many states have seen no price appreciation for over a decade.
When it comes to real estate low interest rates at some point becomes a double edge sword, that effects both the value by making it easier to purchase thus driving up prices, and at the same time allowing more building to take place and increasing the supply. Often we reach or exceed demand, this eventually has a dampening effect on rents and people stop buying it as an "investment".
ReplyDeletePrices must rise and real estate appreciate more then the natural depreciation from the wear and tear from age or the main driver for owning it vanishes. Oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity. Currently we are in uncharted waters, more on this subject in the article below.
http://brucewilds.blogspot.com/2013/12/super-low-interest-rates-disservi...