No Real Estate Bubble in Central U.S.

The top chart above (click to enlarge) shows the OFHEO House Price Indexes for Nevada, South Dakota, Texas and North Dakota, just recently updated through the third quarter 2008.

The bottom chart above shows the regional OFHEO House Price Indexes for the Pacific Census region (Alaska, California, Hawaii, Oregon, and Washington), the West South Central region (Arkansas, Louisiana, Oklahoma, and Texas), the West North Central region (Iowa, Nebraska, Kansas, North Dakota, Minnesota, South Dakota and Missouri) and the East South Central region (Alabama, Kentucky, Mississippi, and Tennessee).

Bottom Line: The way it gets reported by the media, you would think that the entire country is suffering from the devastating effects of a real estate bubble, when in fact the worst problems are concentrated in a handful of states like California, Nevada, Arizona and Florida. The fifteen states in the three regions representing the entire middle part of the country have not experienced a real estate bubble, and the home price indexes for those regions show a historically consistent pattern of gradual home price increases over time, with a slight leveling off in recent quarters.

Comments

[Paul Killinger:]

The media has a vested interest in bad news. Devastation sells soap best. Few people read or watch good news. But when a crisis hits, we all tune in. And the proliferation of news outlets in recent years has served to exacerbate this trend. "The end is coming, the end is coming," cried Chicken Little.

2008 Nov 30 08:25 AM

[Paul Killinger:]

(One could argue this media inspired "group think" had a hand in the housing bubble and the energy crisis. People piled into these investments as they were reported over and over, ad nauseum.)

2008 Nov 30 08:30 AM

[SteveD64:]

But it is not exciting to breathlessly report that everybody paid their mortgage on time, LOL.

Nobody reports that prices in the bubble states have finally come back down to realistic levels so the median wage earner can afford the median priced home.

The US has an outstanding amount of ignorant people in the media.

2008 Nov 30 08:30 AM

[Dr.Jackpot:]

The media made the boom and the media broke the boom.
"Ladies and gentlemen, the winner is-----THE MEDIA !!!"

2008 Nov 30 08:47 AM

[Mowog:]

Ah, don't believe the hype.

2008 Nov 30 08:58 AM

[blasted:]

It is really a financing bubble. Sound underwriting was replaced by writing as much business as possible based on home prices increasing by 5% or so a year by people with no skin in the game. Also anything flies as long as Sam co-signs. Now it is anything flies as long as Uncle Sam co-signs and Sam sure has a lot of houses for sell. Next? Sam is the defacto owner of 25% of the residential real estate, the car companys, the banks and the insurance companies. Sam is in control. Nest eggs evaporated if they are in the market or real estate. New winners emerge and it isn't the investor class.

2008 Nov 30 09:52 AM

[baldguy:]

I live in NE, bought my home in 1991 and sold it in 2003 for 3 times the market price I purchased it for. NO housing bubble? This guy needs to get a life-he sure as hell does not research his facts! and since when is $225k to $300 plus k affordable for the normal working people??

2008 Nov 30 11:14 AM

[carey_jim:]

Two observations:

1) (From Wiki) The top nine states in population contain slightly more than half of the total population. The twenty-five lowest-population states contain less than one-sixth of the total population.

2) Location is value, mostly because of climate (expense of heating in the winter and cooling during the summer) which provides easy, comfortable living, combined with beautiful recreation areas, etc.

When you think of the "rest" of the country, you have to think of the number of people living in these locations and the desirability (and cost) of living there.

For instance, I have nothing against Eau Claire, Wisconsin or Lubbock, Texas, but they are not easy places to live in most of the year. Most Americans prefer to live in more salubrious places and are (were?) willing to pay astronomical prices for the for the privilege.

You need to factor those into your equation.

2008 Nov 30 12:13 PM

[D. McHattie:]

Depends on your definition of 'bubble', 'crash' and 'national'.

Bubble: home prices were inflated in the central states too, just not as much as the coasts, phoenix, vegas. On their own, few people would consider central state prices a 'bubble'.

Crash: home prices are currently and will continue to decline in the central states, just not as much as the coasts, phoenix, vegas. Even homes that are not (much) overpriced will experience declines as the recession reduces incomes and, therefore, the ability to purchase and pay. I give you Michigan and Ohio as examples of areas where home prices never inflated but are crashing nonetheless due to the recession.

National: personally, I would say that the bubble and the crash are national in scope on the basis of the percentage of the US population affected. Those few states that participated in the bubble the least are also the most sparsely populated. I'm not saying that means they don't count - I'm just saying that when 50%+ of the population lives in directly affected areas then I think it's fair to identify the problem as a national one.

As for whether the media has blown this out of proportion, I suggest you take a look at how many major financial institutions have been taken over, bailed out, merged or just plain melted down. That's right, it's practically all of them (Countrywide, Fannie Mae, Freddie Mac, Citigroup, WAMU, Indymac, Merril Lynch, Bear Stearns, AIG, etc).

Any attempt to downplay, dismiss or minimize the significance of this housing bubble to ALL Americans strikes me as either naive or disingenuous.

2008 Nov 30 12:17 PM

[marketwatchr:]

Ripples from the bubble do reach all the states such as jobs, financing, re-locations and construction

2008 Nov 30 12:36 PM

[von Murgenthal:]

Wake up, this ain't your pappy's media anymore !
The same media that is putting Obama in the White House
can report on financial meltdowns, credit emergencies, housing
bubble"blow-ups", "bogus terrorist threats" and whatever else is on their
agenda! It has absolutely nothing to do with reporting or
journalism any more!
I'll just bet y'all a quarterhorse yearling and a wheel of Emmenthaler
that the good people of Eau Claire WI or Lubbock TX would never
contract to purchase a 34-year old 3bedr./1bath/1300sq.ft... garage
Re-do-fixer-upper for US$ 759,000.00 !!!
Harvard ? Yale ? MIT? NYU? no! but commonsense abounds!

2008 Nov 30 07:48 PM

[Redfish Mark:]

If it were only as simple as Dr. Perry suggests. We’d heartily agree that the media has blown aspects of the housing bust far out of proportion, but there are indeed “central US” housing markets that look terrible.

Our team analyzes markets for residential (multifamily, single family) real estate investors, and while there are some markets with surprisingly good metrics in the central US, there are some real dogs too. In this day and age, you have to delve into the details of a unique market to really see what’s happening.

Another key – housing market health is about much more than price - key demographics, job growth and unemployment, economic development activity and efforts, rental market health and the typical housing metrics (valuation, affordability, inventory and supply, etc.) all play a role in determining the vitality and status of a community’s housing market.

Caveat emptor.

2008 Dec 01 09:17 AM

[ckeegan@cda...:]

No bubble or price downturn here in Greenville, SC. The average sale price of an existing single-family home has increased by an average 3.14% per year since 2003, and appreciated by 4.55% in 3rd quarter 2008.

On the flip side, the number of homes sold has slid (down 18% from 2007), but what do you expect when the guy with a 480 credit score can no longer find 100% financing?

2008 Dec 01 10:12 AM

[Paco6945:]

Uh, Baldguy, tripling your money in 12 years is about 9 1/2% annual return. A very good return, but hardly a bubble -- especially in real estate during that time period.

2008 Dec 02 06:15 PM

[Paco6945:]

carey_jim,

I've been to Fresno, Tallahassee, Spokane, Silver City, and Newark. I can't say they are any more salubrious places to live than Lubbock. Well, OK, forget Lubbock. But I'll take Austin over any of those places in the more populous places.

BTW, Texas has a greater population than any state except California. And with the number of Californians moving here every day that could change (much to my dismay).

2008 Dec 02 06:28 PM

[Paco6945:]

Redfish Mark:

Isn't that what Perry is basically saying? That thre is no bubble in the central states, as a region. That's not to say there aren't poor places in the central states to invest in real estate. I wouldn't want to invest in high-end condos in Austin right now. We're overbuilt.

But prices for homes in general here (in Austin) have simply leveled off, not plunged as they have in the bubble areas of the left and right coasts.

2008 Dec 02 06:33 PM