The Regions the Housing Market Recovery Might Leave Behind

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Thursday, April 22, 2010 at 11:45 am

Housing sales should rise a strong 5 percent in March, housing economists say, with the rush fueled by the end-of-the-month expiry of the first time homebuyer’s tax credit. All in all, 5.3 million Americans will purchase a new home. But The Associated Press story injects a note of caution:

Still, some housing market experts predict the market will take a dramatic “double-dip” once the government’s supports are gone. But others argue that there is enough pent-up demand to keep the market chugging. And prices have fallen dramatically since the boom years — as much as 50 percent in some places. So buyers can pick up bargain-priced foreclosures.

The most prominent housing expert anticipating a double-dip is Robert Shiller, the Yale professor and co-creator of the Case-Shiller housing index. In a recent New York Times piece, he argued that the optimism might be premature, particularly given the end of the Federal Reserve program to buy billions’ worth of mortgage-backed securities and Obama’s homebuyer tax credit programs. “Momentum may be on the forecasts’ side,” Shiller wrote. “But until there is evidence that the fundamental thinking about housing has shifted in an optimistic direction, we cannot trust that momentum to continue.”

But momentum where? Bargain-priced foreclosures where? A double-dip where? These articles describe the national housing market, but increasingly it is more useful to think regionally. A national recovery — underpinned by rising consumer and investor confidence and returning employment, if slowed by the end of Obama’s housing-market programs — seems a decent bet. But in certain areas, severe difficulties look likely to continue and even worsen.

I wrote about this in part yesterday, in response to David Leonhardt’s excellent New York Times column on how in many parts of the country the rent ratio implies it is an advantageous time to buy a house. It is in most places. But in a few regions — namely, central southern California, Florida, Michigan and Nevada, plus to a lesser extent Georgia — all signs are that the housing market will not be recovering any time soon. Why? The answer lies in their housing markets as well as in their broader economies.

For one, their residential real estate markets are still in a state of decline. Places like the Inland Empire and Las Vegas and Ft. Myers have the highest concentration of shadow inventory, foreclosed homes that banks have not put back on the market. Moreover, they have increasing rates of foreclosures and delinquencies, implying falling home values to come.

Compounding the problem is that those regions also do not have the fundamentals for broader economic recovery either. They suffer from high, high rates of unemployment. In some cases, their population bases are actually shrinking. And households remain highly indebted. With no construction boom on the horizon — indeed, they tend to have excess housing and commercial real estate stock — these places seem stuck in a vicious downward cycle.

That means, while a broad-based and slow recovery helps turn the housing market around in the majority of states, things look parlous for an already hard-hit minority.

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