Housing Bubble Trouble: In Sunday’s NY Time’s Week in Review (sub required), the paper’s top economic reporter, David Leonhardt takes on the current housing situation in a piece with Vikas Bajaj.
It’s a solid piece which includes Robert Schiller’s much-cited chart showing housing prices from 1890 to today. The sharp upward spike since the mid-1990s is quite striking. But this piece goes to extra-mile quoting Christopher Mayer of Columbia University who has written on “superstar cities” with Wharton’s Joseph Gyourko.
Mayer points out that the recent drop in sales does not sugest that a larger bust is coming. “So far we have only seen peole asking pie-in-the-sky prices and not getting them.”
Housing markets are always local and they’re terribly segmented. The past two decades have seen housing markets get even more stratified and bifurcated into rapidly escalating markets and more sluggish ones.
Mayer and Gyourko show how the increase in housing prices is the result of the remarkable run up in prices in Superstar Cities like New York and San Franciso, among others. Places that have seen 50 year increases and are unlikely to slow down. The Superstar Cities research shows that all that is needed to keep fueling price gains in superstar markets is growth in national income.
Ed Glaeser’s research on the dispersion of human capital can be read as showing that demand for housing in talent magnet regions reinforces the pattern in superstar markets.
So how will the housing market generally and superstar markets fare in the coming months? My own take is that a slump is coming generally, and that it will hit particularly hard in those places where appreciation has been great recently, but that were never Superstar Cities — places like Miami and Las Vegas.
In those places where the underlying business and demographic fundamentals cannot support prices –where job growth has been sluggish or which have seen job declines or loss of talent will also be hit.
My best guess is that superstar markets which offer unique characteristics and amenities and which have attracted talent and built strong economic bases may see prices slow but not dramatic declines.
(posted by Richard)