Last year at this time there was real hope that the housing market was on a sustained path to recovery. The S&P/Case-Shiller Index showed home prices in January 2010 up 4.3 percent from their April 2009 lows. Unfortunately, the most recent data dashes those hopes for a recovery. Home prices in January 2011 were almost back to the 2009 lows.
Real estate experts like to stress the importance of location. While things are clearly bad on average, some markets are doing better than others. Home prices in America’s two biggest cities have fallen a lot less than elsewhere. Prices in Las Angeles are still 70 percent higher than in January 2000, and remain 6.7 percent above their 2009 bottom. In New York City, prices just hit a new low since the housing bubble burst in 2006. Nonetheless, they are still 66 percent above their January 2000 level.
Things are much worse in other metropolitan areas. Prices in Las Vegas, Atlanta, Cleveland, and Detroit are actually lower than they were at the turn of the century. Detroit in particular has gotten clobbered. Prices there are 34 percent lower than in January 2000. This is largely a reflection of the troubled automobile industry and the resulting migration out of the area. According to the most recent census, the city of Detroit lost 25 percent of its population during the past 10 years. There is just no demand for houses in that city. Indeed, many homes in Detroit simply stand vacant.
Home builder Lennar Corp. just announced disappointing financial results for its fiscal first quarter. On the surface, things weren’t so bad. Total revenues were down just 2.9 percent year-over-year and the company moved from a net loss to a net profit. However, digging a little deeper into the results, you see conditions are actually much worse. It turns out that Lennar’s investment activities boosted the revenue figure. Revenues from home-building activities were actually down 10.4 percent. Furthermore, there is no evidence that the business will improve in the coming quarter. New orders for homes and the backlog of homes to be built both fell 12 percent from the year earlier period.
Housing analysts will continue to debate whether or not housing prices are near a bottom. Buying a house today in the right market will probably prove to be a good investment over the long term. In the short run, however, to find support, the housing market needs to see a much stronger jobs market. The good news is that the employment situation has been improving. The bad news is that the improvements have been marginal at best. Job growth is weak and too many people remain unemployed or underemployed. Corporations want to see a stronger economy before they hire more workers. Throw in disaster in Japan and conflict in the Middle East and the level of uncertainty increases tremendously. This pushes the start of a housing recovery further into the future.