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Tuesday, August 23, 2011

New Home Sales Couldn't Get Lower

But they did anyway. However we really don't know, because the reality is that sales at this level deliver numbers that change at rates below that are below the 90% confidence levels, so:
Sales of new single-family houses in July 2011 were at a seasonally adjusted annual rate of 298,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent (±12.9%)* below the revised June rate of 300,000, but is 6.8 percent (±13.5%)* above the July 2010 estimate of 279,000.
We need to get about to the 400,000 mark before changes in these numbers can mean much! For what it's worth, we are also testing the limits of numerical precision in GDP numbers again. Did the US economy contract in the first or second quarter? It's possible!

The San Francisco Bay area reflects the overbuilding of single family housing created in part by restrictive zoning that has generated miles of over priced single family urban housing. American home trends towards magical thinking as if lower and middle class families can actually afford homes priced well above 400K or the rent.
In the West, lower income trends will force future housing trends towards greater neighborhood density and improved public transportation.
Seems to me that it was mandated housing density and "improved" public transportation that helped inflate housing prices, at least on the West Coast. Artificial scarcity, y'know?

I wouldn't bet on those trends continuing longer than five to ten more years. I doubt everybody's going to end up living in apartment blocks.
People, especially those with kids, really want to live somewhere with a yard. They're willing to put up with horrid commutes to do so.

There is a certain subset of the population that not only likes living cheek and jowl with neighbors, but prides themselves on doing so. They are many fewer than those who do not, but they dominate politics in cities.

The results are left as an exercise....
Income trends point towards greater housing density closer to employment centers rather then suburban housing tracts requiring two or three cars along with ever raising fuel cost and the carrying cost of housing maintenance. Its all about income levels and jobs.
There is that, Ron. Complicating the equation is the huge drop in home prices, which make that suburban dream much more affordable than it was five years ago.
I'm not aware of any data which shows higher job growth in cities than in suburbs. Quite the opposite. For the foreseeable future, in my opinion, cities are too bogged down in permits, regulations, and NIMBYs.

New jobs and income are in the 'burbs. Fuel prices won't continue to skyrocket forever, except possibly for relatively brief panic spikes. $5 a gallon gasoline is enough to make an incredible variety of efficiency-increasing technologies economically feasible. Not to mention making vast new oil reserves economically and politically viable. Both outcomes would lower the "natural" price of oil.
If you are talking about living out in the Calif desert such as Riverside or central valley the drives to the employment centers can be several hours each direction and the neighborhoods look more like hoods these days. Calif is not the South, still very expensive and overpriced with extensive forecloses and short sales. A friend purchased a fixer out in Hemet near Palm Springs as a get away house, he recently told me that crime levels were so high he decided it wasn't worth the risk but can't unload it because most of the street is forsale.
It's possible that Los Angeles is a special case, a geographically-constrained metropolitan area which never developed an efficient public transit system. Even so, what job growth exists is in the suburbs, not in Los Angeles proper or the inner-ring suburbs.

You're talking about trends, so I'm looking at trend change.
Ron - I think your comments might be appropriate to your area. However they don't necessarily extend to every region.

Jobs go where it is cheapest to locate them, and that isn't necessarily in inner-urban areas.
PS: But what about working couples?

It seems to me that is one of the big factors - we change jobs relatively often and working couples don't necessarily find jobs located in the same area, which makes for some long commutes no matter where you are.

Urban costs of living total can be very high.
That's exactly the problem here in the Minneapolis metro area. Folks live as far as 60 miles out in every direction. The Metro Council (unelected) controls who gets sewer and water hookups, so they decide where folks can build.

It's not uncommon for a family to live in the northwest, mom to work in the southwest, and dad to work in the northeast, both with 50-mile commutes. And our billion-dollar per segment light rail system won't help, because the urbanists demand that it travels to and from the city centers, rather than burb-to-burb (that way, inner-city traffic can be screwed up to the maximum extent).
My reference is only the SF Bay area but I did look up zip codes in the Minneapolis area and compared to Bay area look very affordable, here some middle class bay area zips and medium home prices:
94502 450K
94707 725K
94602 407K
94611 699K
Wealthy spots
94920 1.7M
94027 2.6M

Ron - those numbers are just not affordable, but they aren't that characteristic of the entire country.
Coastal Calif is still in mega bubble housing territory, these numbers are common up and down the coast. The real shock is when you look up the medium family incomes for these zips, most are less then 85K trying to support 600 to 800K medium home prices.
The reason for the housing boom in the San Joaquin valley (Turlock) was high housing prices in the Bay Area. I talked to more than a few folks out there that told me that. Your money doesn't buy you much in the Bay Area.
Ron - this too will pass. The home prices, I mean.

I think a lot of people got in those houses before they appreciated, and others rode the bubble up to get in.

But from scratch? Nah.
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