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Housing Recovery: Still Marred by Regional Differences

by Harrison Stowe on March 3, 2014 · 2 comments

  
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With the housing market appearing to enter a period of slower growth, market observers have started to conclude that we’re slated for a longer-term recovery. There is still some regional unevenness, but for the most part analyst consensus seems to be pointing toward hope for sow but steady growth in the immediate. However; there are some differing opinions on the matter.

Housing Recovery: Still Marred by Regional Differences

A recent Washington Post story paints a somewhat more complex picture of the housing market. Citing a newly published study from the Demand Institute, the report notes that regional differences in price stability and growth persist throughout the U.S. One of the most galling takeaways was the disproportionate value difference between major metro regions. Disclosing analysis from the Demand Institute report, the Washington Post pointed out that the top 10% of cities encompassed within the report held 52% of total housing wealth. In terms of financial specifics, the top 10% of city regions held $4.4 trillion in property wealth, while the bottom 40% held only $700 billion (or 8% of the total housing wealth overall).

Granted, some cities will inevitably contain inordinate amounts of valuable property. Economic powerhouses like Los Angeles, Chicago, San Francisco, and New York City would naturally hold a sizable portion of American urban property wealth. What was most surprising about the report was how comparatively lacking the remaining cities were.

As an adjunct to this, the Demand Institute report also analyzed the likelihood of future value gain and the potential increases. States with depressed housing prices were predicted to gain the most value through 2018, with New Mexico and Illinois among those singled out. As a comparison, regions with relatively stable housing prices leading into 2012 were predicted to have the lowest future prices gains. Both Washington DC and New York were ranked among the lowest states in terms of future value gains.

Related: Housing Recovery Is Helping Consumer Economy

What’s the Takeaway?

Much of this makes straightforward economic sense. Metros whose property suffered the least during the recession had the least room to climb. Places whose property values crashed or gradually dwindled clearly had much more value to recover, and had a longer recovery timeframe as a result. Clearly some of these cities are looking toward well past 2014 until their homes regain their value (if they ever do so fully). Illinois and greater Chicago may well see a new emergence as popular home locations, whereas all signs point toward much of Detroit maintaining its stagnation.

Ultimately, property investors would do well to balance the current property values (or lack thereof) against other hard economic factors – job growth, real estate demand, as well as projections around population growth. As always, the health of local property markets is tied to job figures, and the same can be said for the U.S. housing sector as a whole.

What are your thoughts on the housing recovery? Let’s discuss…

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{ 2 comments… read them below or add one }

Sharon Tzib March 4, 2014 at 8:18 am

The Demand Institute report was fascinating – every investor should read it. A couple of things in it stuck out.

“…forecasts that price appreciation will slow, toward an average of 2.1 percent between 2015 and 2018 as supply and demand move into equilibrium. By 2018, the national median price for such a home will not quite have reached its nominal 2006 peak, but it will be close. Adjusted for expected inflation rates, however, the median home price will stand 25 percent below its 2006 level.”

I see a lot of people in the forum who tend to use much higher appreciation numbers when calculating their projections. It seems many investors need to lower their expectations. And for anyone who lost equity in the crash, the road to recovery may be a very long one.

“Of the 2200 largest cities and towns in America, our analysis suggests that approximately 50% are currently facing fundamental economic pressure. These are the 1,105 Transitional Cities, Deflated-Bubble Communities, and Challenged Communities (with its Endangered Communities sub-segment). The sheer magnitude of communities facing serious issues is startling, and it poses daunting challenges for both public- and private-sector leaders.”

Daunting indeed. Knowing what market your investments are in currently, and where you may want to invest going forward, makes sub-market research even more critical than ever before.

Thanks for the article, Harrison.

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Barbara March 6, 2014 at 8:54 am

Thanks for the article Harrison. You’re absolutely right when you say “Property investors would do well to balance the current property values (or lack thereof) against other hard economic factors.” Indeed, property investors should consider factors such as the housing appreciation rate, job growth rate, return on investment rate (or cap rate), annual rent variance change, and vacancy rate when deciding on where to invest in rental property for instance. Conducting a thorough market analysis for property investment can help investors hedge the risk of short- versus long-term investments and manage their ROI expectations.

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