How the Tortoise Prevented a Housing Market Collapse
Friday, October 30, 2009 | Ethan RobertsRating:
Tycoon readers, Today I want to tell you about some cities in America that are bucking the overall national real estate trends ... and have been doing so for quite a while.
These are places where people did not speculate about the market top, and there is little discussion about foreclosures or short sales.
In these locales, there is also very little angst anymore about falling home prices.
In some of these cities, there never was a real boom, nor was there ever a bust.
You could say that slow-and-steady has once again won the race!
In life, as in fables, the tortoise often beats the hare...
The cities I'm describing are those where unemployment levels are more moderate and home prices are stable, or even rising.
In fact, according to CNNMoney.com, during the last three years, 23 states recorded home price gains in many of their cities, quoting a study done by Fiserv, a financial services consulting company.
Most of those areas that did well were in the Plains states, the non-coastal West, and parts of the South, such as Texas.
Even in New York, where New York City and Long Island were both down about 21%, there were areas upstate such as Buffalo, Syracuse, Utica and Binghamton that showed price gains.
These are areas where the home prices never skyrocketed because there was lots of land to be developed. Since prices remained low, there was no need for subprime mortgages to buy the homes. And since there was little chance of a quick profit, very little "flipping" was going on.
No Boom, No Bust ... Just Blossoming
Many of the strongest cities in America right now are in the Texas-Louisiana-Oklahoma-Kentucky regions. Let's take a look at some of them today.
San Antonio, Texas, is the second-largest city in Texas, and seventh-largest city in the United States, with a population of just over 2 million people.
When home prices were skyrocketing in California, Florida, Nevada and other areas, San Antonio's home prices were just plodding along like the tortoise above. So, there was a much lower risk of a severe decline.
Construction jobs have rebounded recently, and the city boasts new schools, hospitals, military projects, and a new Caterpillar (Symbol: CAT) plant. The unemployment rate of 6.9%, though up from a year ago, is significantly below the national average of 9.8%.
Near the U.S. market peak in April 2006, the median listed price for homes in San Antonio was $173,818. Three-and-a-half years later, the median list price is $186,280.
In fact, home prices grew 3.1% in the second quarter of 2009.
And in the last year, when many areas of the country have seen home prices drop by 20%, San Antonio's home listed prices are down only a scant 1.1%!
Market collapse? Tell that to the people in San Antonio!
Tourists visit the famous Alamo in San Antonio
Dallas, Texas, is another area of Texas that has done quite well.
Dallas is really an anomaly among American cities. The median listing price this month is $199,900, which happens to be 5.3% higher than one year ago.
However, one negative trend worth noting is its fast-rising unemployment rate. The Dallas/Forth Worth/Arlington area now sports an 8.3% unemployment rate.
While still below the national average, this rate is up 3.5% in the last 12 months!
It is very unlikely that prices will continue to rise into next year without a moderation of those jobless numbers.
Downtown Dallas, early morning...
Here's Another Horse You Can Bet On
Louisville, Ky., the home of Churchill Downs and the Kentucky Derby, is another city that didn't boom and didn't bust.
The median list price in April 2006 was $159,450, and the median list price today is $159,900. The inventory of active homes is now about 10% higher than what it was then, but the peak of inventory levels was actually reached in September 2007, and is a healthy 16% below that figure today.
Unfortunately, the unemployment rate in Louisville is over 10%, and higher by almost 4% from a year ago. Up until August, prices were holding steady from a year earlier, but prices have dropped off about 4% in the past two months.
But slow-and-steady isn't the only interesting divergence going on. There are some cities where the listing prices have been rebounding, correlated to falling inventory levels. One such example is:
Louisville, Ky., the home of Churchill Downs and the Kentucky Derby, is another city that didn't boom and didn't bust.
The median list price in April 2006 was $159,450, and the median list price today is $159,900. The inventory of active homes is now about 10% higher than what it was then, but the peak of inventory levels was actually reached in September 2007, and is a healthy 16% below that figure today.
Unfortunately, the unemployment rate in Louisville is over 10%, and higher by almost 4% from a year ago. Up until August, prices were holding steady from a year earlier, but prices have dropped off about 4% in the past two months.
But slow-and-steady isn't the only interesting divergence going on. There are some cities where the listing prices have been rebounding, correlated to falling inventory levels. One such example is:
Riverside, Calif., In this city of 320,000 people (60 miles southeast of Los Angeles), the median list price was $461,100 in April 2006. It reached a low of $217,080 by March 2009, but has been rebounding ever since.
In October, the median list price had clawed its way back up to $235,000.
Now, there are two factors about Riverside that are extremely interesting. The first is that its unemployment rate, as of August 2009, was a whopping 14.5%!
You surely wouldn't think that home prices could rise in the face of that.
But what is most fascinating about Riverside is the vast drop-off in the number of listings within the past year.
In October 2008, there were 47,030 listed properties. This month, that number has now fallen to 27,972. That's a decline of over 40%!
Can you say supply-and-demand laws?
The Historic Mission Inn, Riverside, Calif., at Christmas time...
There are several conclusions that one can draw from the national data that has recently emerged:
1) Decreases in inventory levels are occurring in a majority of U.S. cities, and are to some degree able to counter the deleterious effects of rising unemployment levels.
2) Cities that experienced only moderate price increases during the boom years of 2003-'07, also experienced the smallest declines since then, and are relatively stable in price right now -- especially if their unemployment levels are below the national average.
3) The areas of highest job growth and diversity of industries, are likely to be the cities that will continue to outperform the rest of the country over the next year.
What Goes Up, Must Come Down
So why are inventory levels beginning to come down? The main reason for dropping inventory levels are now:
So why are inventory levels beginning to come down? The main reason for dropping inventory levels are now:
1) Many homeowners are now too upside-down on their mortgages to be able to sell.
2) Increases in owner-occupant buyers taking advantage of low prices, low interest rates, and the Home Buyer Tax Credit, in case it ends on Nov. 30.
3) Investors snapping up foreclosures at ridiculously low prices.
2) Increases in owner-occupant buyers taking advantage of low prices, low interest rates, and the Home Buyer Tax Credit, in case it ends on Nov. 30.
3) Investors snapping up foreclosures at ridiculously low prices.
So if you want to know the best places to invest, or where the jobs are for a possible move, keep an eye out for real estate markets with low unemployment levels, stabilization of home prices, and declining inventory numbers.
What Shape is Your State in?
I will continue to update you with the national information on a regular basis. In the meantime, here is a recent state-by-state chart, showing unemployment rates in each. (The five lowest unemployment rate states are highlighted in green.)
Unemployment rate by state (as of end of August 2009)
| State | Aug. 2009 Rate |
Aug. 2008 Rate |
Change from year earlier |
| Alabama | 10.4% | 5.2% | 5.2 |
| Alaska | 8.3% | 6.7% | 1.6 |
| Arizona | 9.1% | 5.9% | 3.2 |
| Arkansas | 7.1% | 5.1% | 2.0 |
| California | 12.2% | 7.6% | 4.6 |
| Colorado | 7.3% | 4.9% | 2.4 |
| Connecticut | 8.1% | 6.1% | 2.0 |
| Delaware | 8.1% | 5.1% | 3.0 |
| District of Columbia | 11.1% | 7.2% | 3.9 |
| Florida | 10.7% | 6.5% | 4.2 |
| Georgia | 10.2% | 6.4% | 3.8 |
| Hawaii | 7.2% | 4.2% | 3.0 |
| Idaho | 8.9% | 5.2% | 3.7 |
| Illinois | 10.0% | 6.7% | 3.3 |
| Indiana | 9.9% | 6.0% | 3.9 |
| Iowa | 6.8% | 4.2% | 2.6 |
| Kansas | 7.1% | 4.4% | 2.7 |
| Kentucky | 11.1% | 6.7% | 4.4 |
| Louisiana | 7.8% | 4.8% | 3.0 |
| Maine | 8.6% | 5.4% | 3.2 |
| Maryland | 7.2% | 4.5% | 2.7 |
| Massachusetts | 9.1% | 5.4% | 3.7 |
| Michigan | 15.2% | 8.6% | 6.6 |
| Minnesota | 8.0% | 5.4% | 2.6 |
| Mississippi | 9.5% | 7.3% | 2.2 |
| Missouri | 9.5% | 6.2% | 3.3 |
| Montana | 6.6% | 4.6% | 2.0 |
| Nebraska | 5.0% | 3.3% | 1.7 |
| Nevada | 13.2% | 7.0% | 6.2 |
| New Hampshire | 6.9% | 3.9% | 3.0 |
| New Jersey | 9.7% | 5.7% | 4.0 |
| New Mexico | 7.5% | 4.3% | 3.2 |
| New York | 9.0% | 5.7% | 3.3 |
| North Carolina | 10.8% | 6.6% | 4.2 |
| North Dakota | 4.3% | 3.3% | 1.0 |
| Ohio | 10.8% | 6.7% | 4.1 |
| Oklahoma | 6.8% | 3.9% | 2.9 |
| Oregon | 12.2% | 6.5% | 5.7 |
| Pennsylvania | 8.6% | 5.5% | 3.1 |
| Rhode Island | 12.8% | 8.3% | 4.5 |
| South Carolina | 11.5% | 7.3% | 4.2 |
| South Dakota | 4.9% | 3.1% | 1.8 |
| Tennessee | 10.8% | 6.6% | 4.2 |
| Texas | 8.0% | 5.0% | 3.0 |
| Utah | 6.0% | 3.4% | 2.6 |
| Vermont | 6.8% | 4.7% | 2.1 |
| Virginia | 6.5% | 4.1% | 2.4 |
| Washington | 9.2% | 5.4% | 3.8 |
| West Virginia | 9% | 4.2% | 4.8 |
| Wisconsin | 8.8% | 4.7% | 4.1 |
| Wyoming | 6.6% | 3.4% | 3.2 |
| Puerto Rico | 15.1% | 12% | 3.1 |
Source: Bureau of Labor Statistics
So, let's hear it for the tortoise! He may not have been faster than the hare, but he sure is way ahead of him in this race!
North Dakota...land of strong employment...
And now, as usual, I will ask for feedback from Tycoon readers.
What are prices like in your area? Are they up, down or holding steady? Is the unemployment rate having a large effect upon your housing market? Do there seem to be fewer homes on the market now than a year ago? I look forward to hearing from you.
See you next week!
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Ethan Roberts
Contributing Editor
The Tycoon Report
