as most major news networks will be reporting today (as i usually do, i've chosen the financial times's story to be my reference), housing prices in major metropolitan areas have fallen by 18.2% year-on-year since december 2007. and despite a last-minute jump in the total volume of sales at the end of 2008, the median american home price fell 8%. because we haven't moved far enough beyond the moment of crisis, these figures, which largely consist of contracts locked in before september, understate the housing market's reckoning. expect far more dismal results in the approaching quarters. what is interesting about the ft's report is that its focus is metropolitan real estate's suffering. you can bet that if city properties, which are by far the most overvalued in the country, have been hit so hard in such a short period of time, that there is and will be a serious retrenchment in the highest income brackets. a drop in prices has less of an immediate effect on the less mobile--the poor--who, when buying a home, are making a more-or-less long-term committment. low-income families face the much more wrenching, but also menacingly slower, creep of a reduced quality of life; the cycle begins with falling property tax receipts, which in turn reduces municipal services, itself reinforcing the drop in home prices and further reductions in the taxable portions of home values. the rich, on the other hand, will lose big initially, and only afterwards will those who survive seek safer places to hide their gold. t-bills, anyone?
macroeconomically, what is most important about the demise of the housing bubble is the additional squeeze it places on credit and, therefore, on the american way of life (you can't see it, but my tongue is almost goring my cheek as i write that). such a profound collapse in the primary source of equity in the states correspondingly puts the kaibosh on the largest chunk of the consumer credit market. if houses can't be credit cards, and credit cards can't be credit cards, expectations of a rebound in consumer spending powering us out of the recession are entirely in vain. in addition, the state of the housing market almost guarantees that those americans who have already refinanced (my guess is that represents the clear majority of property owners) will use any income returned by the feds in tax cuts to pay down their debt, as they look to cut their losses before further 'corrections' widen the gap between the value of their homes and the amount they were able to borrow with them at the market's peak. in other words, the C is definitely on the ropes for the next little while; our hopes for recovery rest, then, with G and I.
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San Francisco was undoubtedly one of the most grotesquely overvalued metropolitan areas property-wise, so I think the shape of its particular real estate implosion as somewhat representative. Throughout the 2000s, the highest density, grade-A froth from the property bubble was not lathered betwixt the glistening condos of wealthy urban neighborhoods in San Francisco proper, but was splooged asunder to the suburbs and the exurbs. I remember a few years back my mother telling me that the most expensive place to live in America was Salinas, California.
ReplyDeleteThis struck me as odd at the time: Salinas, I thought, depressed shithole setting of 1930s novel "Of Mice and Men," was still a shithole if only slightly less depressed. Unfortunately, because of its "proximity" (90 miles south) to San Francisco, the area had absorbed all of the high real estate and living prices of its flamboyant metropol with none of the higher wages. Why? Commuters who work in San Francisco but can't afford to live there (on top of an unholy plethora of developers) had gobbled up the cheap real estate until it wasn't cheap anymore.
Now its places like Salinas are seeing the biggest price "readjustment." I think Stockton (about equidistant from San Francisco to the east) has seen the biggest relative price decline in America.
So while I'd love to share your slight optimism that the property market implosion is only fucking the rich directly (and saving the indirect fuck via crumby tax revenue and poorer services for the middle and working classes), I worry that the latter group is once again taking it in both holes.
i suppose i had east coast cities in mind when i wrote what i did. given zoning restrictions, there's been less extreme development on the fringe of places like boston and new york (orange county excepted) and more outflow from grossly overpriced 'inner city' neighborhoods to cheaper but already established outer city areas. queens absorbs most displaced families in new york, and there's certainly no room for a salinas there. since those neighborhoods are usually well-connected to manhattan--though you could be looking at bus to subway if you're far enough east--and since the neighborhoods weren't prematurely ejaculated from the living soil in the last ten years, they represent a safe investment, even if you paid well above their value. besides, the rich don't move to maspeth or glendale, not when they can buy $80 million central park west penthouses.
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