Off The Charts - Floyd Norris
The New York Times, August 26, 2006
“If you raise prices enough, people will stop buying. That may not impress economists as a new thought, but it accurately describes the current United States home market, where home buyers are suddenly more reluctant to put down their money, and the supply of homes for sale has reached record levels.
“The housing boom that now appears to have ended was most pronounced in a handful of areas largely concentrated on the East and West Coasts, while people in the Midwest wondered what all the excitement was about. Now it is the areas that did the best that are seeing the most buyer resistance. In three states, the rate of home sales in the second quarter of this year fell by more than a quarter from a year earlier. All are in warm-weather areas, all were viewed as likely to gain population as baby boomers retired and all enjoyed rapid price rises in the first half of the current decade, in part because of speculation by investors seeking quick profits. They are California, Florida and Arizona.
“While those states had the largest decline in sales rates, the six other states along with the District of Columbia that led the country in sales price increases early in the decade are now also experiencing sales declines more rapid than those in the nation as a whole. They include Hawaii and Nevada, two other areas that had intrigued investors, as well as the region that benefited from the growth of the federal government in this decade: Maryland, Virginia and the District of Columbia.
“At the other end of the list are 10 states with the smallest home price gains from 2000 to 2005. In six of them the pace of sales has risen this year, notwithstanding the national trend, and another three have had declines that are smaller than the national average.
The best of those 10 is Texas, where the pace of sales in the second quarter of 2006 was up 11 percent from a year earlier, and at a record high. Texas has benefited from a trend that may have hurt home sales in most areas: rising oil prices.
The state where higher oil prices are perhaps the worst news is Michigan, home of an automobile industry that bet on the continued growth of sales of sport utility vehicles. Home prices did not rise much there early in the decade, but now the pace of sales is falling at a double-digit rate, worse than in the rest of the country.
"Put another way, the pace of home sales in Michigan is almost exactly where it was in late 1997, while the national sales rate is still 46 percent above the figure then. In Texas, the gain over that period is 83 percent. Over that same period, the price of a barrel of crude oil has soared to $72 from $18.
"During the first part of this decade, it was the so-called blue states, the ones that elect Democrats, that were more likely to see big home price increases. If those that rose the most then are now to suffer the most, it will be the blue states that do the worst of the housing downturn.
"Among the states where home prices rose more than the national average from 2000 to 2005, John Kerry won 155 electoral votes in 2004, compared with just 55 for President Bush. But among states where home prices rose less than the national average, Mr. Bush gained 231 electoral votes to just 97 for Mr. Kerry"
-- Contriubted by Eric Harari of
MLR Realty
