| As the Economy Declines, Prospects Diminish in Some Areas |
| Written by Jonathan Smoke | |
| 11.11.2008 | |
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Discuss this article on the forums. (0 posts) At the end of last week, the National Association of Realtors released the September Pending Home Sales Index. The report showed that contracts for the sale of existing homes declined in September relative to August but were still higher than September last year. Lawrence Yung, NAR’s Chief Economist said the “weakening was understandable,” presumably since the economy’s outlook dimmed considerably in September, but he still saw reason to be positive since the year over year reading was positive. Yung used the opportunity to continue NAR’s lobbying for more housing stimulus: “The depth of the recession depends entirely on housing – with sufficient housing stimulus, the recession will be shallow. If government actions stay focused on housing, the cost to the Treasury would be much less than the potential losses in the nation’s output and income in a severe recession.”
There is no doubt that housing has a large impact on the economy, but the reverse is true as well. In fact, usually housing downturns are caused by economic downturns. So what can we expect now that the economy has clearly entered a recessionary period? I turned to our local market expectations according to our Housing Prospects Index. The HPI and its underlying components are based on the latest historical data and forecasts for key housing metrics, including market equilibrium, economic outlook, home price risk, and long-term home price appreciation. As I compared our latest calculations with those we reported in August the relative outlook for all markets in the country is consistent. However, we are seeing significantly diminished prospects in some areas as employment, income, and home price forecasts have become more negative.  Notice all of the brown spots? They tended to be greener in the August report. So, the average market has seen a decline in prospects, but the extremes (the best and the worst markets) have remained relatively consistent. Since the tone is negative today, I will focus on the worst markets. I’ll highlight the best markets later in the week. Before we get into the list, it’s important to note our emphasis on relative prospects. Our index calculations are meant to give a picture of what we expect these markets to be like in 3-5 years. While the market equilibrium is current, the other variables are based on the most recent forecasts out for five years. The indices are relative so they score the markets against one another. Using the 363 largest markets in the country (all 363 metropolitan statistical areas as defined by the Census and the White House/Office of Management and Budget), the worst markets for housing are large coastal markets and markets with major current economic issues: 1. Ocean City, NJ Comparing the updated list to the list we published in August, 8 markets improved to be off the current bottom list: Portland, ME; Allentown, PA; Gainesville, FL; Rockford, IL; Palm Coast, FL; Barnstable Town, MA; Detroit, MI; and Dover, DE. Most of these markets only improved slightly relative to other bottom-dwelling markets. Rockford, IL improved the most with modest increases in all metrics. Entering the bottom 20 were 8 new markets: Punta Gorda, FL; Fort Walton Beach-Crestview-Destin, FL; Tallahassee, FL; Pensacola-Ferry Pass-Brent, FL; Providence-New Bedford-Fall River, RI-MA; Salinas, CA; Sarasota-Bradenton-Venice, FL; and Sebastian-Vero Beach, FL. All eight of these markets have been near the bottom previously so conditions haven’t changed that much. The most notable observation is that Florida dominates the bottom of the list as 13 of the bottom 20 markets are in the sunshine state. National subscribers to HousingIntelligence can access two different versions of our latest Housing Prospects reports, one focused on the 363 metropolitan statistical areas, and one covering all 939 market areas, which includes the metropolitan and micropolitan statistical areas. 
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