We often refer to ‘the’ housing market, as if it were a singular entity. But nothing could be further from the truth. In reality, what we have in the United States are dozens of individual housing markets that move independently. They are not linked by some invisible force. They have their own forces of supply and demand. They march to their own drums. Consider the following example.
I have previously pointed out the vast differences between the Atlanta and Phoenix housing markets, in order to make a point. So you can imagine my delight when Bloomberg Businessweek ran a similar story yesterday. In the article, entitled “Housing: A Long Way From Normal,” the authors made a similar comparison between these two markets:
“Phoenix metro housing prices rose 12 percent through April and have continued upward since … In Atlanta, meanwhile, the housing recession is far from over: Home prices fell 17 percent in the year through April to their lowest point since 1997.”
According to the authors, this is evidence that the housing market is still far from normal. It begs the question: Are we truly a long way from normal, as the article suggests? Or have we found a new normal? I would argue it’s a little of both.
Clearly, we have a long way to go to reach a state of normalcy in the housing sector. We are on shaky ground in many respects, from inventory to unemployment. At the same time, we must realize that some things will just never be the same. Consumer confidence tops this list.
Leading up to the housing crash, home prices were widely viewed as an unshakeable force. We sold securities backed by mortgages for this very reason. Aside from the occasional hiccup, we assumed our homes would always go up in value. Now we know better. And this kind of awareness does strange things to consumer confidence.
In September of 2011, the Federal Reserve Bank of St. Lois held a public forum on the cause and effect of the housing/financial crisis. Leading this discussion was Julie Stackhouse, a senior vice president with the St. Lois Fed. During the discourse, she said: “We like to think that [home] values will always increase over time; we need to begin to think that they might not.” Welcome to the new normal.
A Sea Change in Consumer Perception?
The shift in consumer perception is one of the key reasons why individual housing markets move more independently today. You can’t say the housing market is recovering and expect everyone in the country to believe it. Local conditions might say otherwise. These days, housing supply and demand are measured at the micro level, not the macro.
We are a skeptical bunch these days, and rightfully so. In many ways, we are like our grandparents and great grandparents who weathered the Great Depression. We don’t believe the bankers anymore. We are skeptical of what the experts tell us about the economy. We keep a tighter grip on our wallets.
This has everything to do with supply and demand. Homeowners in Stockton, California, one of the most foreclosure-plagued cities in America, are still shell-shocked by the financial ruin they see all around them. In Austin, Texas, where I lived for a few years before, during and after the housing collapse, the crisis was little more than a bump in the road. Some cities were barely touched by the foreclosure boom, while others are still reeling from it.
This leads to huge variations on the demand side of the equation. These differences on the demand side affect the level of inventory, which influences home prices, which either drives or decreases demand going forward. And so the cycle turns.
It could be 20 years before ‘the’ housing market marches in lockstep again. Or it may never happen. We all need to adjust to this. The media needs to do more reporting at the local and city level. Homeowners and home buyers should focus their research at this level, as well.
Writers Wanted for Local Real Estate Reporting
We are doing our part to increase the amount of real estate reporting at the city level. In fact, we’ve built an entirely new website for this purpose. It’s called MetroDepth, and it offers local housing news and research. But we can’t do it alone. It’s a big project. We need writers and reporters, and plenty of them. By next summer, we hope to have one reporter for all of the major metropolitan areas in the United States.
If you have experience with real estate blogging, financial journalism, or some combination of the two, head on over to MetroDepth.com and check out our writing program.