February 1, 2010

Ken Fears, Manager of Regional Economics

There is no national housing market, only a collection of regional and local markets each with its own dynamics. Some markets entered the national housing recession earlier than others and are now beginning to emerge, while others are stymied with deep inventories. A few markets experienced a harsh slowdown followed by an equally strong rebound, while others only slowed without a resurgent jolt back to "normalcy". Where is your market? The Local Market Reports for the third quarter are now available on the NAR Research website and they provide valuable insights into regional trends developing around the country.

The markets hardest hit by the subprime mess are clawing their ways out of what were steep housing recessions. Sales volumes in California, Minnesota, and Virginia surged in late 2008 and early 2009 and have plateaued at high levels, while sales in Florida and Nevada continue to grow rapidly. Inventories in these areas remain elevated, so high levels of demand are needed to reduce excess supply and stabilize prices. However, foreclosure rates are high and growing in some cases as shown in the table below. Several markets in Florida and Nevada have seen foreclosures on prime loans jump by double digits compared to last year and are rising. To add to the problem, the delinquency rate on prime mortgages, a strong indicator of future foreclosures, increased between February and August in nearly all of these markets.

The sales boom pushed prices onto the path of stabilization in many of these markets. Price growth is still negative in most markets in California, but the rate of decline has moderated and is nearly flat. For instance, the median price in San Diego fell 20.0% between the third quarter of 2007 and the same period in 2008. But over the 12 months ending in the third quarter of 2009, prices had declined just 3.0%, an indication that increased demand has helped push the market toward a new price-equilibrium for that market and that positive price growth, if only modest, is the likely next step.

New England and the Northwest both experienced substantial price corrections, but on a much smaller scale than those states that were the epicenter for the subprime crisis. As a result, markets in New Jersey, Connecticut, Pennsylvania, Massachusetts, New Hampshire, Washington and Oregon have undergone steady sales growth from the third quarter of 2008 through the same period in 2009, but not the volcanic rebound witnessed in Florida, Nevada or California.

Housing markets in the South and Midwest were the last to join the national housing boom. Prices were slower to rise in this region than in the hottest markets. Consequently, though the markets are sluggish in their rebound, they were able to avoid the boom-bust cycle of markets like California and Florida. Employment conditions are having a more pronounced effect on demand in these areas, though. These housing markets were slower to blossom because their economies were slower to grow after the recession of 2001 and 2002 suggesting that home sales are more responsive to job creation in these areas. Unemployment has risen sharply in these regions, doubling in some cases as depicted in the table above. Sales have fallen as a result in South Carolina, Tennessee, Alabama, Texas, Utah, North Carolina, Virginia, Kansas, and Oklahoma. This trend will be a drag on housing demand in the near-term.

Unemployment Rate	September   2008	September 2009
Birmingham, AL	4.8%	10.2%
Mobile, AL	5.5%	11.1%
Salt Lake City-Ogden, UT	3.1%	6.0%
Wichita, KS	4.5%	8.6%
Montgomery, AL	5.5%	10.2%
Tulsa, OK	3.8%	7.0%
Charlotte-Gastonia-Rock Hill, NC-SC	6.7%	11.6%
Raleigh-Cary, NC	5.1%	8.6%
Greensboro-Winston-Salem-High Point, NC	6.6%	11.1%
Houston-Baytown-Sugar Land, TX	5.1%	8.5%

 

Unemployment is a widespread concern. In fact, it is a problem in every market covered in NAR's Local Price Reports. All of the 156 markets covered witnessed an increase in the unemployment rate between September of 2008 and September of 2009 of at least 20% with 108 experiencing an increase of 50% or more. Housing markets with larger populations tend to have more diverse economies and stronger demand for housing. One result is that price moderation draws fence sitters to the market; this pattern is helping these markets to find price stability despite the slow economy. But smaller markets with narrow economies and smaller reserves of fence sitters have been less resilient to a decline in demand as the economy stalled.

Despite the economic headwinds weighing on home sales, the majority of markets covered in the Local Market Reports continue to improve. Of the 156 markets, 107 markets experienced positive price-growth movements whether that is a smaller decline in 4-quarter price growth compared to a quarter earlier or an outright increase in prices relative to a year ago. For instance, the median home price for the second quarter in Saginaw-Saginaw Township North (Michigan) metro area was 30.6% lower than the same period in 2008, but by the third quarter of 2009, the year-over-year change had moderated to a decline of 6.7%, a 24 point swing towards 0 or stabilization.

Though the median prices in most markets of California and Arizona markets are still down compared to a year earlier, all of the seven markets in California and two in Arizona registered significantly smaller 4-quarter price declines in the third quarter compared to the 4-quarter period ending in June. In fact, all nine of these markets experienced double-digit changes from a quarter earlier. Every market in Florida experienced a similar change in direction compared to the June reading, but at single-digit levels. One notable move in the wrong direction is the shift in the Raleigh-Carey, Charlotte-Gastonia-Concord, and Greensboro-Highpoint markets of North Carolina. All three markets have seen the decline in their median price accelerate from the second quarter to the third quarter.

Most markets are stabilizing on the upswing, but some are further along than others, while some still languish. To find out how your market is has done, see the Local Market Reports for the third quarter that are now available on the NAR Research website.

 

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

 

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