Creative Class

Felix Salmon says there’s no end in sight for the housing bust, pointing to the latest edition of the Case-Shiller Home Price Index. Housing prices are off 36 percent since their 2006 peak.  Housing prices have fallen back to 2002 levels in nominal terms but, as Business Week’s Prashant Gopal notes, they’ve plunged to 2000 levels when adjusted for inflation. Calculated Risk (with great graphics as usual) predicts another 10-20 percent drop,

Regional differences remain pronounced. Phoenix and Las Vegas are down more than 50 percent from their peak values, while Dallas is off only 11 percent. Dallas, Denver, Boston, Charlotte, and New York appear to be holding up best. New York prices remain 73 percent above their 2000 levels, Detroit’s are nearly 30 percent below – in line with their 1995 levels.

Real estate got just about everyone into trouble in Phoenix, and the thinking seems to be that real estate is going to get everyone out.

A real estate “frenzy” is apparently developing there, the NYT reports, as bottom-feeders gobble up mass foreclosures.

It’s not just Phoenix I fear, it’s our national mind-set writ large.

Map by Scott Pennington, Martin Prosperity Institute

This map charts the housing-to-wage ratios for U.S. metropolitan areas in 2006, the height of the bubble. It differs from the more commonly used housing price-to-income ratio. Historically, housing prices have been about three times income, but by 2006 housing prices had soared to a high more than five times incomes. In Irvine, California, the housing price-to-income ratio soared to 8.6 by 2006.

The housing price-to-wage ratio may provide a better gauge of housing bubbles. Income is a broad measure that includes wealth from stocks and bonds, interests, rents, and government transfers and other sources. Wages constitute a more appropriate gauge of a region’s underlying productivity, accounting for remuneration for work actually performed.

Forget ratios like four or even eight. Six regions – all in California – posted ratios of 15 of greater: Salinas, Santa Cruz, Santa Barbara, Oxnard-Thousand Oaks, Napa, and San Luis Obispo. Another 12 metros had ratios above 10 – L.A., San Francisco, San Jose, San Diego, and Riverside, California, as well as Honolulu, Hawaii, and Naples, Florida.

The housing-to-wage ratio also generates a number of surprises. Greater New York’s ratio (9.4) was slightly higher than Las Vegas (9), and Greater DC..’s (8.7) slightly bested Miami (8.4). Boston (8.1) and Seattle (7.6) topped Phoenix (7.2). Chicago’s (5.9) was higher than Tampa (5.6) or Myrtle Beach (5.5).

What regions seem to have avoided the bubble? The cream of the crop on the housing-to-wage ratio are Dallas (3.5), Houston (3.2), Pittsburgh (3), and Buffalo (2.8).

Image courtesy of Tata Housing

Tata – the Indian mega-conglomerate that launched the $2,000 car – has created a housing division which is building new apartments ranging from $7,800-$13,400 dollars outside Mumbai (pointer via Planetizen). Business Week’s Prashant Gopal explains:

Tata’s housing division is targeting a segment of the market that was largely overlooked during the housing boom. India’s builders were concentrating on building shiny new high rises and mansions on golf courses … Luxury flats in Mumbai can cost more than ones in Manhattan. But these apartments won’t be luxurious. The Tata apartments will be built on 67 acres in Boisar, an industrial area where many lower-wage commuters already rent. These apartments will be absolutely tiny. The carpeted area of the smallest units will be 218 square feet, too small even for most Manhattanites. The largest units would be about 373 square feet.

Check out the pictures, floor plans, and payment plans here.

Is the Phoenix housing market starting to turn the corner? The LA Times thinks so (pointer via Planetizen):

Phoenix’s housing bust has turned into a quasi-boom, a sign that its market may have hit bottom and a sneak preview of what a national housing recovery could look like.

More homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers are once again finding themselves in frantic bidding wars – only this time over foreclosed houses selling at deep discounts rather than ranch homes listing for vast sums.

Not so fast. Phoenix, as the same LA Times story notes, had perhaps the biggest housing bubble of all. Prices have plunged from $268,000 in June 2006 to $120,000 – the sharpest decline of any metro tracked by the Case-Shiller home price index.

Looks more like bottom-feeding to me. Long-run recovery will turn on the region developing new industries and work that can replace the tens of thousands of jobs wiped out in real estate and construction.

Investment in single family homes has done some serious cliff diving.

(Image via Calculated Risk).

Housing starts dipped to record lows in April. Just 357,000 single family homes were started last month, while total starts feel to 458,000 – an all-time record low. Calculated Risk charts the trend.

The Financial Times highlights the global scale of the real estate crisis:

The slump across global commercial property markets has accelerated since the turn of the year, with the emerging markets in particular struggling under the combination of capital value and rental falls. The pace of decline in capital values accelerated in the first quarter, while almost every country in the world is reporting a slide in rents …

Rebecca Wilder calculates housing bubbles – measured in terms of the price-to-rent ratio – for the UK, Ireland, Spain, and Germany as well as the U.S. (pointer via MarkThoma). America’s bubble looks downright mild compared to Ireland, the UK, and Spain.

Amazing video of brand new suburban homes being razed by bulldozer. Apparently, Guaranty Bank of Austin took over the homes in foreclosure – four in a suburban Texas development and another 12 in one suburb in California – and is knocking them down ostensibly to promote a “safe environment” for neighbors, and more likely because it is cheaper to destroy them them to keep them on their books.

This may be just the tip of the iceberg. Once desired, suburban and ex-urban communities with cul-de-sacs, McMansions, and long commutes could be on their way to becoming the blighted and abandoned communities of tomorrow, accelerating the process Chris Leinberger documented in an essay for the magazine in March 2008.

A large and apparently growing share of mortgages are underwater according to this analysis in the Wall Street Journal:

And, the economic crisis appears to be reshaping America’s economic geography in ways that work against the Sunbelt’s cities of sand and sprawl where real estate development became much more than a way to house workers, but a key driver of economic development itself.

Long ago, I asked my colleague, the esteemed urbanist and architect David Lewis, what he thought was the biggest issue of urban revitalization of our time. He responded without hesitation that the eventual decline of sprawling, shoddily constructed, exurban communities would make the urban cores of cities like Philadelphia or even Detroit – with their compact infrastructure, dense neighborhood footprints, and authentic and historic structures – look like a walk in the park. Not to mention that this entire development cycle is a giant waste of resources and a potential drag on long-run economic competitiveness and prosperity.

What can be done to kick-start the housing industry, and also make housing more affordable for the poor and middle class buyers? A new book by economists Ed Glaeser and Joseph Gyourko takes on these questions and more. Here’s a blurb from the American Enterprise Institute which commissioned the book:

Even after the burst of the housing bubble, homes remain unaffordable for the poor and the middle class in many parts of the country. In a new NRI-commissioned book, Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable (AEI Press, December 2008), Edward L. Glaeser and Joseph Gyourko examine why. They show that local building restrictions are the cause of much of the continued high cost of housing.

Glaeser and Gyourko argue that reform of the home mortgage interest deduction would provide incentives to local governments to reduce these barriers, allowing the market to provide more housing and reducing costs. Additionally, they believe that federal subsidies for the production of low-income housing should be eliminated and the funds reallocated to increase the scope of federal housing voucher programs, which allow poor households to relocate to areas of greater economic promise.

Here’s a link for the PDF of the entire book.