Home prices climbed again this spring, even in Las Vegas, where the crash hit so hard that entire neighborhoods of brand new, foreclosed-upon houses were virtually abandoned. We’re supposed to greet the news with glee. It is, after all, an indicator of the strength of the economy. If folks can afford to pay more for houses, then they must be making more money. If more houses are being built, then more jobs are being created, the economy is regaining steam, and we’re all getting richer.
If only. Here’s what we know: Home prices are increasing in most places, in some cases dramatically. Those prices, naturally, are being driven by an increase in sales. Less clear is what’s driving those sales, who’s buying the houses and what it all means for the bigger economy.
To try to suss out some answers, I present a bunch of graphs, focusing mostly on Arizona and Nevada indicators, since those are the two states that saw the biggest housing boom, bust and apparent rebound. I also threw in New Mexico, because it seems to defy regional trends. Thanks to the Federal Reserve Bank of St. Louis for the wonderful data tools.
It’s immediately apparent that housing prices are getting better. But it’s also clear that they’re not anywhere near what they were back in 2007. And they’re not going to get there anytime soon, either. That’s because the apparent rebound is being driven by sales of lower priced houses. People are jumping on good deals, probably because they're cheap, not because they necessarily want that particular home. And it’s not just people, it’s corporations, too (oh, yeah, corporations are people!). Big investors, most notably Blackstone on a national level, are snatching up low-priced homes in bulk and renting them out to all the people who are disgusted with or can’t afford home ownership. By taking those houses off the market, the investors are putting a crunch on the supply of housing that's for sale, which then drives prices up. Meanwhile, many folks are holding back on putting their homes on the market because they still owe more than their house is currently worth (so the supply crunch continues).
Housing sales are going up, but home ownership is plummeting. This is the natural fallout of the aforementioned trend of investors -- not first-time homeowners -- buying up all the houses.
This is perhaps one of the most flabbergasting graphs of all (only Arizona is shown because the Fed doesn’t have figures for Nevada or New Mexico). Notice how vacancy rates rose even as prices shot up exorbitantly? During the boom, thousands of houses were built not because there was a burgeoning population needing a place to live, but to be used as no more than Monopoly-esque trading chips. They were bought only as investments, in other words, and often remained empty. According to a recent Sonoran Institute report, some 16 million homes were built in the U.S. between 2000 and 2010, but the nation only added 11 million households. Meaning there’s at least five million empty homes sitting around out there. Meanwhile, many of the West’s towns are plagued by a chronic affordable housing crisis. What a world.
And yet, despite all those empty homes, we’ve started building new ones again. Is this really a good idea? Surely the new construction is a reaction to the perceived housing inventory shortage. But it seems only a matter of time before the market reaches a point at which folks decide, en masse, to list their homes for sale. Inventory crunch ends. All these new homes remain empty. Prices plummet.
The relationship between jobs and housing isn't all that clear. Unemployment rates are clearly going down from the recession's worst point, but are still much higher than pre-recession levels. In Arizona, some of that might have to do with a tiny rebound in construction jobs, which make up a significant chunk of the state's economy. But if job figures are any indication, Nevada and New Mexico have yet to see any recovery.
So is the housing market making a comeback? Yes. But it's a limited one, at best, fueled more by investors jumping on good deals than by an improving economy or new jobs. Meanwhile, the apparent rebound may be giving a tiny boost to the construction sector, but it's not significant enough to be changing the overall jobs picture in these particular states. In any case, there's little reason to expect the current upswing to continue for long. Hope for a real housing recovery is about as empty as all those houses sitting vacant out there.
Thumbnail photo in e-newsletter courtesy of Flickr user rbglasson, licensed under Creative Commons.
Jonathan Thompson is a senior editor at High Country News.