" to the housing boom, or is another outcome in store? In light of statements by former Fed Chairman Alan Greenspan, the National Association of Realtors (NAR), and a recent prominently reported study by a construction-industry-financed Institute affiliated with Harvard, all predicting such a "
," I decided to check some good data. In this diary, first I review what the commentators have said. Then I offer an objective standard to test their opinions. Then I post home pricing data below the fold for over 50 metropolitan areas (probably including yours), then give my own opinion. Next it's your turn to weigh in (with a poll). How will the housing boom end? (If you want to skip the preliminaries and see what's happening with house prices in your city, skip right to point 3 below, but WARNING: chart is lengthy!)
And from the "Harvard" study(via marketwatch.com and Business Week Online, June 15, 2006.):
Paraphrasing another blogger (hat tip to bubbletrack.blogspot.com), let me offer the following: the traditional definition of soft landing is related to general economics, not housing. As used in general economics, a soft landing is a period when there is no inflation or recession. It's a flat economy. This is in contrast to a recession, which is a decline in general business, usually defined as at least 2 consecutive quarters of falling GDP. Guided by the correct definition above, a soft landing in real estate would be a period when the market (in terms of price) is flat. If, however, prices decline for at least 2 quarters, the market is no longer in a soft landing, but rather a recession, or a hard landing. A crash occurs when there is a 10+ decline in prices over a very short time.
In interpreting the data below, I have expanded the definition of a "soft landing" to include a very mild decline that may not upsetting even to recent buyers with little equity (the "deflate slowly" scenario mentioned by the Harvard study). I've drawn the line at -3%, feeling that any protracted decline over more than 12 months at that rate, coupled with inflation, would create a 10% or greater net loss which, if it occurred nationwide, would probably produce economic pain. Here are the definitions I am using:
The data set below comes from www.benengebreth.org's "Housing Tracker" site. For a fuller description of metropolitan areas, as well as a week by week breakdown of median prices and additionally prices in all 52 metropolitan areas for starter homes (25th percentile) and luxury homes (75th percentile), visit the site. I have calculated the annualized rate of appreciation/depreciation in housing prices for each area, from the data available on the site. Additionally, since (for reasons too long to get into here) luxury homes frequently start to decline in price before the median price does, I have noted same in parenthesis where applicable. Where the market has turned since the data set began, I have made the calculation for median prices extrapolating an annual rate of depreciation from the high water mark, except where the turn is so recent (within the last 45 days) that it may be a false reading. In that case, however, I have given the annualized rate of decline for the luxury home figure, in parenthesis, with an number sign(#). Finally, there is a marked "seasonality" to the data. Frequently there are price decreases around Christmas/New Year's. Where the decrease was substantial, I have posted it as well.
Metropolitan area
dates inventory median $ luxury $ yearly median (luxury) increase/decrease
Still Booming:
Salt Lake City, Utah
06/14/2006 1,907 $284,500 +82.0%
08/14/2005 5,308 $169,000
San Antonio, TX
06/14/2006 8,080 $179,000 +33.5%
02/01/2006 7,534 $161,000
Albuquerque, NM
06/14/2006 2,698 $279,000 +26.3%
08/14/2005 1,889 $228,900
Nashville, TN
06/14/2006 5,769 $205,000 $380,000 +21.4% (-66.02%)#
06/01/2006 5,607 $205,000 $389,900
08/14/2005 5,227 $174,000 $305,000
Honolulu, Hawaii
06/14/2006 3,866 $539,000 +18.7%
01/07/2006 3,028 $500,000
Raleigh-Durham, NC
06/14/2006 8,679 $210,000 +18.1%
08/14/2005 8,482 $182,425
Seattle, Washington
06/14/2006 4,187 $439,500 +17.3%
08/14/2005 3,808 $384,000
Philadelphia, PA
06/14/2006 11,777 $199,900 +17.1%
08/14/2005 8,010 $175,000
Austin, Texas
06/14/2006 7,301 $215,000 +15.8%
08/14/2005 10,041 $190,000
Baltimore, Maryland
06/14/2006 7,879 $289,900 +14.3%
08/14/2005 4,337 $259,000
Newark, New Jersey
06/14/2006 1,770 $345,000 +14.3%
12/28/2005 1,275 $299,900
10/01/2005 1,285 $315,000
Memphis, Tennessee
06/14/2006 10,137 $168,900 +12.1%
08/14/2005 9,471 $153,400
Boise, Idaho
06/14/2006 3,055 $288,000 +10.6%
09/21/2005 1,506 $266,790
Portland, Oregon
06/14/2006 5,936 $364,900 $554,950 +8.1% (-23.2%)#
05/21/2006 5,199 $371,900 $565,900
08/14/2005 4,241 $329,900 $520,000
Oklahoma City, OK
06/14/2006 7,274 $159,900 $239,170 +8.0% (-27.6%)#
05/14/2006 6,672 $162,900 $244,800
08/14/2005 5,756 $149,900 $227,900
Soft landing:
San Jose, California
06/14/2006 5,401 $715,000 +6.5%
01/01/2006 2,951 $675,000
11/14/2005 4,396 $688,850
Atlanta, Georgia
06/14/2006 43,743 $200,000 +6.3%
08/14/2005 37,479 $189,900
Louisville, Kentucky
06/14/2006 7,636 $154,900 +6.2%
08/14/2005 6,618 $147,500
San Francisco, CA
06/14/2006 2,321 $735,000 +6.2%
08/14/2005 1,632 $699,000
Tucson, Arizona
06/14/2006 8,478 $275,000 $395,000 +5.5% (-9.5%)
08/14/2005 3,520 $263,000 $429,000
Saint Louis, Missouri
06/14/2006 10,303 184,900 $299,900 +4.7% (-34.6%)#
05/14/2006 9,871 $186,415 $308,800
08/14/2005 8,261 $178,000 $298,300
Indianapolis, Indiana
06/14/2006 15,373 $140,000 +4.4%
08/14/2005 13,743 $135,000
Cincinnati, Ohio
06/14/2006 11,145 $159,900 +3.9%
08/14/2005 9,353 $154,900
Houston, Texas
06/14/2005 29,911 $165,000 +3.8%
08/14/2005 27,732 $159,900
Chicago, Illinois
06/14/2006 34,822 $298,000 +3.4%
08/14/2005 29,010 $289,900
Kansas City, MO
06/14/2006 16,630 $179,900 +3.4%
08/14/2005 13,663 $174,950
Denver, Colorado
06/14/2006 25,908 $225,000 +2.8%
08/14/2005 21,477 $219,900
Jacksonville, FL
06/14/2006 13,427 $316,911 $513,000 +2.7%(-8.1%)
08/14/2005 5,635 $310,000 $549,900
Dallas, Texas
06/14/2006 23,475 $150,000 +2.3%
08/14/2005 22,229 $147,125
Orange, California
06/14/2006 9,011 $639,000 +2.2%
10/01/2005 4,833 $629,900
Riverside, California
06/14/2006 10,260 $482,000 $599,900 +1.8% (-2.9%)
01/07/2006 5,750 $464,000
08/14/2005 4,158 $475,000 $615,000
Cleveland, Ohio
06/14/2006 14,505 $159,900 $262,800 +0.0% (-3.2%)
08/14/2005 11,936 $159,900 $269,900
Columbus, Ohio
06/14/2006 14,153 $164,900 +0.0%
08/14/2005 11,991 $164,900
Detroit, Michigan
06/14/2006 28,403 $130,000 +0.0%
08/14/2005 23,709 $129,900
Minn.-St. Paul, MN
06/14/2006 18,214 $254,900 +0.0%
08/14/2005 13,170 $254,900
Omaha, Nebraska
06/14/2006 4,897 $184,950 -0.8%
08/14/2005 3,986 $186,268
Sacramento, CA
06/14/2006 10,743 $392,500 $499,000 -2.2% (-3.7%)
01/07/2006 6,862 $385,000 $489,000
08/14/2005 6,039 $399,900 $515,000
Washington, DC
06/14/2006 12,152 $479,900 -2.2%
12/21/2005 6,793 $450,000
08/14/2005 5,347 $489,000
Newport Beach, CA
06/14/2006 4,030 $765,000 $1,299,000 -2.4% (-8.3%)
12/21/2005 2,532 $734,900 $1,300,000
10/01/2005 2,814 $777,500 $1,375,000
Hard Landing:
Las Vegas, Nevada
06/14/2006 21,883 $339,999 -3.1%
08/14/2005 16,119 $349,000
Orlando, Florida
06/14/2006 22,039 $319,900 -3.7%
01/07/2006 13,533 $324,900
Los Angeles, CA
06/14/2006 16,877 $625,000 -4.6%
01/01/2006 11,329 $599,900
08/14/2005 9,719 $649,999
Boston, MA
06/14/2006 7,579 $428,876 -5.4%
08/14/2005 4,642 $449,000
San Diego, CA
06/14/2006 14,386 $520,000 -5.5%
08/14/2005 9,656 $545,000
Milwaukee, WI
06/14/2006 7,176 $200,000 -5.7%
08/14/2005 5,317 $209,900
Reno, Nevada
06/14/2006 5,527 $398,000 -8.1%
09/01/2005 3,617 $423,900
Tampa, Florida
06/14/2006 14,203 $270,000 -8.1%
09/21/2005 5,913 $287,500
Phoenix, Arizona
06/14/2006 25,165 $349,000 $525,000 -9.8% (-20.0%)
08/14/2005 7,447 $379,900 $629,900
Miami, Florida
06/14/2006 34,797 $390,000 $606,500 -9.9% (-16.0%)
08/14/2005 12,361 $425,000 $700,000
Crash:
Norfolk, Virginia
06/14/2006 3,076 $357,900 $539,900 -18.1% (-27.%)
03/07/2006 1,998 $374,900 $579,000
09/01/2005 942 $342,000 $539,000
Cape Coral, Florida
06/14/2006 18,405 $334,900 -19.7%
01/01/2006 10,764 $364,900
09/07/2005 7,199 $343,769
New Orleans, LA
06/14/2006 4,853 $229,900 -46.0%
04/07/2006 3,786 $249,000
08/14/2005 3,250 $205,000
A few notes about the above data. First of all, they are "asking" rather than "sale" prices. Once there is an inventory glut, many of the higher-priced (per square foot) houses may never sell, thus distorting the data upward. I.e., even if "asking" prices are still increasing, "sales" prices may already be in significant decline. And if "asking" prices are decreasing, it's a pretty sure bet that "sales" prices are decreasing even more. Secondly, of course it isn't perfect. I have no idea why the northern New Jersey suburbs are the only portion of the NYC area included in the data. Thirdly, note that inventory levels correlate well with the rate of appreciation/depreciation. Almost areas still appreciating at rates greater than the inflation rate have inventories increasing at 50% or less a year. Almost all areas with inventories increasing by more than 100% a year are undergoing substantial losses. Finally, note that all 3 "crash" cities turned less than 6 months ago, suggesting that when the markets turn, they do so dramatically.
First, and surprisingly so, a considerable portion of the markets are still booming.
Secondly, the "median" home market in the data set is still appreciating at about 3%, and the middle 50% of markets fall into the "soft landing" category. So it seems that our current situation can indeed be termed a "soft landing."
What about the future? It may be that since we are in the midst of a "soft landing" period as applied to the average market, that may continue indefinitely into the future. Possibly by the time the markets still booming end, those markets that have already declined will rebound or at least no longer be in decline.
But ... and here I go out on a limb... it's hard to ignore that 1/4 of the markets are still red hot, and 1/4 of the markets have turned ice cold. So... A more ominous observation is that our current situation may be akin to a roller coaster at the top of an incline: the backmost seats are still going up, the middle seats are in equipoise at the top, and the front seats have already started down. An article I read a few months ago posited that the housing boom had spread out sequentially from primary to secondary to tertiary markets, and that we should expect the housing bust similarly to start in the primary markets and only subsequently spread out to secondary and tertiary markets as well. Some metropolitan areas are at an earlier or later stage of the boom as others. The biggest losers include places like Phoenix, Miami, Boston, and San Diego that until recently had been poster children for the real estate boom. Yesterday the Home Builders reported that they were increasingly pessimistic about the market. The Arizona Republic on Sunday reported that parts of the Phoenix area have already seen declines of 20%. Recall that almost all of the areas with declining prices have done so consistently since the data set started, suggesting they were already in decline--and our "crash" cities data above suggests that the first few months of the decline -- which probably occurred before the data started for Phoenix, etc. -- are dramatic. Are secondary and tertiary cities like Boise, Salt Lake City, and Memphis truly representative of the future, or are they rather like latecomers to the party, not quite drunk on excess yet? If this is the case, then the experience of Miami et al. are leading indicators for what is in store for places like Philadelphia, Seattle, and Kansas City: i.e., a hard landing if not a crash. Personally, I think this interpretation is more valid. So, my vote as to the future is for a hard landing.
What's your opinion? Take the poll below,