26 August 2009

The State Of The U.S. Housing Market

Denver real estate prices look like they are in a recovery phase. The latest report shows that in metro Denver, "home prices rose 2.5 percent compared with May but were down 3.6 percent compared with the same month a year ago[.]"

Two major cities, Dallas and Cleveland, are doing a little better than Denver, but seventeen other major cities have weaker housing markets. Markets like Detroit, Miami, and Las Vegas have seen declines compared to a year ago or more than 20%, enough to wipe out all of the equity in a home purchased a year ago with a conventional mortgage.

Also, distressed sales of existing properties have made new homes uncompetitive. In normal times, there are about six existing homes sold for every new home sold. Right now, the ratio is twelve to one.

Fundamentally, housing bubble prices caused home builders to build too many new homes, and now our economy has more houses than it needs.

Our economy doesn't need more housing now. The hard lesson of the Soviet Union's economic collapse was that producing things that people don't need doesn't improve people's standard of living and simply hides economic stagnation. Indeed, production that isn't needed is not only an unsustainable to create jobs in the long run, it also puts people who would ordinarily be needed to produce what people actually need on average out of work in the future. The lesson of holes is to first stop digging. The housing market has done that now in an extremely painful way.

GDP is a meaningful measure of standard of living only in economies that approximate a free market model sufficiently that the assumption that goods and services produced have economic value is a reasonably accurate assumption.

The demand for new housing will continue to be the case until demand for housing that can be built for current, more normal prices (close to current prices in non-bubble markets like Denver, but possibly lower still in markets that had big housing bubbles) returns due to factors like population growth and income growth in particular local housing markets. A recovery in Denver and New York won't create a market for new housing in Las Vegas or Miami.

Given the extremes that the seven year long housing bubble reached in many areas, it could be long time before home building companies have much work to do. This means that jobs in an economic recovery will have to come from other sectors of the economy.

It will be a long time before immigration by less skilled workers will be a big issue again in the U.S. economy. Many of the jobs that immigrants filled were in the construction industry. Many more were in equally ailing hospitality industry (e.g., hotel maids) and manufacturing industry (e.g., meat processing plants). Without these jobs, the incentive to immigrant goes away, and many foreign workers will give up and return to their home countries. For a while, at least, reconciling available immigration quotas under reform legislation, and the people who want to legalize their status, may be relatively easy.


Brittanicus said...

n ominous pattern is slowly emerging towards an inevitable power play on pushing another amnesty through Congress. We need to take the many consequences into consideration:
1 We already had an enforceable 1986 law to stop the illegal immigrant invasion of our country, but it has been intentionally ignored? So--WHY--are they adamant in passing another immigration law?
2. Most enforcement legislation has been crushed or weakened by many of the politicians we voted into office.
3. That many of our own government members have pandered to the special interest lobbyists and not voters.
4 For decades American taxpayers have been supporting, business welfare, who have never contributed to foreign national workers. That emergency hospitals, must attend any foreign person who enters its doors, illegal or legal? ICE should be on standby and demand who that individual is working for and subsequently make the employer pay instead of the taxpayers.
5. That Democrats are downplaying that the 20 plus illegal immigrant families living here, will not have access to the health care reform package? But are not saying that if a new path to citizenship is enacted, they can automatically get health care?
6. Should a new immigration reform package is passed, what's stopping millions more poor, uneducated people storming the border.
7. Why did Sen. Harry Reid, Speaker Nancy Pelosi and other members of the party try to dismantle E-Verify and under fund the border fence, so it was only a single layer instead of two tiers?
8 That E-Verification is working and working well, so no wonder the US Chamber of Commerce, ACLU, Cato Institute and a large majority of anti-sovereignty groups have been involved in lawsuits, and questionable appeasement by politicians to kill the any enforcement laws.

9. Why are we still inviting around a million new immigrants a year, when their are about 15 million jobless Americans? My health care experience was mainly in England, Germany and 15 months in Australia and prior to the mass European immigration invasion was positively first class. FIRST CLASS AND EXEMPLARY! THERE WAS NO SUCH THING AS RATIONING?

Of all the states that--SHOULD--be using E-Verify, is the illegal immigrant sanctuary state of California. Illegal immigration attributed to the near bankruptcy of California and is a prime example of intentionally ignoring immigration laws. The U.S. Census Bureau projections issued in the year 2000, that the United States is precisely on track to have a population of 1.182--BILLION--in the year 2100. So much for future American population is OVERPOPULATION.


PS: Least we forget that Ted Kennedy RIP--NEVER TOLD THE TRUTH--when he promised their would be no more AMNESTIES, after the 1986 immigration reform act?

Andrew Oh-Willeke said...

Suffice it to say that I disagree strongly with almost everything in the comment from Brittanicus. I am bemused by his comment that: "Democrats are downplaying that the 20 plus illegal immigrant families living here[.]"

Does he mean in his apartment building or neighborhood?

Does he mean 20 million families? Assume that illegal immigrant families are at least as large as an average American family (2.5 people), that would mean 50 million people, which is about 1 in 6 people in the U.S.

In fact, the illegal immigrant population of the United States is about 11 million people (down from a 2007 peak of about 12.5 million people), which is abouut 3.7% of the U.S. population. About 57% of illegal immigrants were from Mexico, 24% were from other Latin American countries, primarily from Central America, 9% were from Asia, 6% were from Europe and Canada, and 4% were from the rest of the world.

The most charitable possibility (with regard to accuracy) is that he may mean 20 million people in families with 12.5 million people who are illegal immigrants (assuming his numbers are old) and another 8.5 million people who are U.S. citizen members of their families (mostly American born children).

His fundamental beefs seem to be points 4, 5 and 9.

He thinks that illegal immigrants cost society more than they pay in taxes (particularly with regard to health care) and take away jobs from Americans.

Empirically, the evidence is that illegal immigrants are not using more government services than they pay for in taxes, that illegal immigrants are not a heavy burden on the health care system, and that illegal immigrant has a surprisingly low impact on the job market for U.S. workers.