Archive for June, 2010

Arizona and California May Lag in Housing Recovery versus the Rest of USA

Wednesday, June 30th, 2010

John Jannarone - WSJ
Some of America’s hardest-hit housing markets still have legs.

Or so it appeared Tuesday, when an S&P/Case-Shiller report for April showed healthy price increases in some states where valuations had fallen the most. Thanks to a government tax credit, the 20-city index enjoyed a 4% increase year-on-year. But San Diego and San Francisco fared far better, with prices up 12% and 18%, respectively. Even Phoenix beat the national average with a 5% rise.

The performance will be tough to sustain. First, states that indulged in cheap credit during the boom can expect foreclosures to provide plenty of supply for some time. Some 38% of subprime mortgages in California are in foreclosure or more than 90 days delinquent, says the New York Federal Reserve. In Texas, where home prices have barely declined, the rate is only 19%.

And while homes have become more affordable overall, that isn’t enough to support price increases statewide, let alone nationwide.

Much of California’s housing boom was driven by people migrating to distant suburbs for lower prices. But with prices in San Francisco 36% off their peaks, such areas have less appeal.

Of course, sharp declines attract buyers eventually. But for Americans to have the confidence to buy, local economies and labor markets need to improve. California’s unemployment rate stood at 12.4% in May, compared with 9.7% nationwide.

Finally, states such as California and Arizona that extended the most subprime mortgages may have pulled demand forward. That means large numbers of younger people have already purchased homes. With much still to overcome, the worst-hit states are unlikely to be first in line for a sustainable recovery.

Write to John Jannarone at john.jannarone@wsj.com

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