Construction activity came to a near-halt after the housing bubble burst. The number of new residential units authorized in 2009, 2010, and 2011 was less than one-third of the level during the boom. In 2011, construction activity picked up slightly from 2009 and 2010, as the housing recovery began, with permits for new multifamily buildings leading the construction recovery. Multifamily construction has increased  because rental demand rose during the recession as people chose not to – or were unable to – buy or keep their homes. Just this past year, rents rose 5.6 percent nationally according to the Trulia Rent Monitor, and that encourages builders to construct new multifamily buildings.

As always, housing is local. Construction is gearing up in some markets and remains dormant in others. These patterns are critical for understanding the future of cities, for two reasons.

First: construction activity is a bet on future growth. Developers will build only in areas where they expect housing demand in the future. Of course they can bet wrong, and that’s what happened during the housing bubble; construction in many metros far exceeded housing demand, and lots of newly built homes were (and still are) vacant. Still, construction is a clear signal of builder confidence in an area.

Second: construction shapes urban form. Housing units live a long time and are rarely destroyed, so new construction has a long-term impact on density and sprawl. The primary tool that officials have to affect density, sprawl and urban form is deciding what type of new construction, if any, to allow in different communities.

What do construction patterns say about the future of cities in America? This week the U.S. Census Bureau released data on construction permits issued by localities in 2011, including whether those permits were for single-family homes or units in multi-family buildings.

Metros with the Most Construction Permits

More permits were issued in the Houston metro area than in any other metro, by far. Four of the top ten metros were in Texas. But this list is dominated by large metro areas, and we’d expect bigger areas to have more construction activity. Looking instead at the number of permits issued per 1,000 existing housing units shows the impact of construction on metro areas relative to their size. Here are the top and bottom ten metro areas by construction activity, among the largest 100 metro areas:

Most Construction Activity

Least Construction Activity

The rate of construction is highest in metros within Texas and the Carolinas and lowest in the Northeast and Midwest. The map shows the pattern across America. The rate of construction is higher across the Texas, the mid-South and Mountain states, but lower in New England, the Great Lakes, South Florida and most of coastal California.

Two factors stand out to explain which areas have the most construction. The first is long-term employment growth, which is the best guide to future housing demand. The second is smaller recent price declines: metros where prices fell less during the bust had less overbuilding and are therefore ready to absorb new housing. Among the ten metros with the highest rate of construction, all had above-average job growth over the past ten years, and none had experienced the huge home price declines that the hardest-hit areas did during the crash. Builders and developers are betting on metros with solid histories of job growth that escaped the worst of the housing crisis.

What does construction activity mean for urban form? The mix of single-family versus multi-family permits is a strong guide. Multifamily construction is higher density than single-family construction, and single-family construction is more sprawling. For the U.S. overall, one-third of the construction permits in 2011 were for multi-family units. But the multi-family share ranged widely among the largest metros, from 91 percent of permits issues in the New York metro and 86 percent in San Francisco all the way down to 2 percent in Dayton, OH, and 3 percent in Palm Bay-Melbourne-Titusville, FL. In Houston, where more permits were issued in 2011 than anywhere else, just 27 percent were for multi-family units. But not all of Texas is sprawling: in Dallas, 49 percent of permits were in multi-family units, well above the national average. In Los Angeles – which used to be the poster-child for sprawl – 77 percent of new permits were for multifamily units. Among the top permit-issuing places, Phoenix has the lowest share of multi-family permits at 20 percent, along with Houston (27 percent) and Atlanta (28 percent).

The future of sprawl, therefore, is not California. Houston, Phoenix, and Atlanta are America’s current capitals of low-density construction. Builders are betting on future growth in the South, in Texas, and in the Southwest, and they’re building single-family homes to meet that demand.

One month ago, we introduced the Trulia Price Monitor and Trulia Rent Monitor as the earliest leading indicators of how asking prices and rents are trending nationally and locally. So what happened to prices and rents in April?

April’s Price Rise Makes a Three-Month Streak
Nationally, housing prices have bottomed and are on the rise. Asking prices on for-sale homes were 1.9% higher in April than one quarter ago. A 0.5% month-over-month rise in April, on top of month-over-month price increases in March and February, makes for three months in a row of rising asking prices, after adjusting for typical seasonal trends. In fact, prices have been stable or rising for the past eight months, except for a dip in December 2011. This marks a new milestone: asking prices were 0.2% higher in April than a year ago. Before April, prices were still falling year-over-year.

Not only are rising prices starting to look like a real trend: they’re also coming to a market near you — if they haven’t already. Asking prices increased year-over-year in 44 out of the 100 largest metropolitan areas, with Miami and Phoenix leading the charge. Why these markets? One factor is job growth, which boosts housing demand. Miami, Phoenix, Warren-Troy-Farmington Hills (suburban Detroit) and Denver all saw strong employment gains in the past year. Another factor is the big price declines after the bubble, which attracted house hunters and investors searching for bargains to those markets. Most of the metros with the largest price increases in the last year had huge price declines during the bust, including Phoenix, Warren-Troy-Farmington Hills and the four Florida metros in the top ten. But among the metros with the largest price declines over the past year, only three–Sacramento, Las Vegas and Fresno–had huge overall price drops after the bubble burst.

Note: Rankings based on the year-over-year changes in asking price among the 100 largest U.S. metropolitan areas. Want to see the full list of price and rent changes for all 100 metros? You can download it here.

Seattleites, take heart: in the most recent quarter, most of the metros with year-over-over price declines have turned around. Prices rose quarter over quarter in 92 of the 100 largest metros, including in Seattle, Las Vegas and Atlanta. See the full list of metros with yearly and quarterly price changes here.

Rents Keep Marching Upward
Rental demand remains strong, with rents rising 5.6% nationally year over year. One reason for this continuous climb is job growth, as the metros with the largest rent increases tend to have fast job growth, like San Francisco and San Jose. But another reason why rents keep going up is the decline in homeownership: foreclosures forced some owners to become renters, while tight credit and the weak job market put homeownership out of reach for many others. The result: rents have risen even while prices were falling, and now that prices are rising, rents are rising even faster.

Note: Rankings based on the year-over-year changes in asking rents among the largest U.S. metropolitan areas. Want to see the full list of price and rent changes for all metros? You can download it here.

Let’s Get Local: What About Prices and Rents in My Neighborhood?
Even within a metro area, neighborhoods have their own price and rent trends. This month we looked at trends within five large metros: New York, Los Angeles, Chicago, Washington DC and the San Francisco Bay Area.

In the New York area, prices rose year over year in Brooklyn, Manhattan and Staten Island, while declining in the rest of the region. But rents rose everywhere – both in the City and suburban areas.

Note: In these tables, asterisks (*) denote areas where sample sizes are too small to report year-over-year changes in rents.

In Los Angeles, asking prices increased only in the downtown area. Prices fell elsewhere throughout the region, most of all in Long Beach. As in New York, though, rents rose throughout the region, except for Long Beach, with downtown LA experiencing both the biggest increases in prices and rents.

With four million homes lost to foreclosure since the housing crisis began, and another 11 million borrowers underwater on their mortgages today, housing policy is focused on keeping current homeowners from losing their homes. This year, Washington housing wonks have fought over “principal reduction”: reducing mortgage loan balances for underwater borrowers to help them stay in their homes. The fight has turned nasty and personal with Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA)—the regulator of Fannie Mae and Freddie Mac—at its center.

It’s an insiders’ fight, hardly registering on Main Street or in the election campaign, and that’s no surprise. The election campaign turned to housing only in January and February, when states suffering most from the housing bust—Florida, Nevada, and Arizona—held their Republican primaries and caucuses.

However, the fight over principal reduction hits all the big themes in the national debate over housing policy that will resurface as the presidential election draws near.

As with all housing policy during this recession, the debate over principal reduction is one small piece in a big, messy puzzle. There are many government policies in place or under discussion that try to help homeowners stay in their homes. Each policy or proposal focuses on some types of borrowers and not others. The key criteria for whether a borrower is eligible for these programs are:

1. Whether the borrower is current on their mortgage payments;
2. Whether their mortgage payments are more than 31 percent of their pre-tax income;
3. How far underwater the borrower is;
4. Who owns, guarantees, or insures the loan

The fourth piece—who owns, guarantees or insures your mortgage—makes housing policy a confusing mess. Only borrowers with Fannie- or Freddie-backed mortgages (60 percent of all mortgages) are eligible for refinancing under the Home Affordable Refinance Program (HARP). If that sounds unfair, take heart: President Obama thinks so, too, proposing in his State of the Union address a plan to make refinancing widely available to borrowers with mortgages not backed by Fannie or Freddie.

The Home Affordable Modification Program (HAMP), which modifies loans using various tools in order to reduce monthly payments, is different: unlike HARP, HAMP isn’t just restricted to Fannie- or Freddie-backed loans. In fact, HAMP loan modifications can go further for borrowers who don’t have Fannie or Freddie loans.

Here’s why: the FHFA allows Fannie and Freddie to modify loans under HAMP by lowering the interest rate, extending the term of the loan and deferring principal interest free, but not by reducing principal. Other mortgage servicers do use principal reduction as a tool to modify non-Fannie or Freddie loans (though only in 30 percent of loan modifications, so even when allowed it’s not the number one tool).

That’s what the big fight in Washington is about: getting the FHFA to add principal reduction to the list of approved tools in HAMP loan modifications. You wouldn’t know it from the fighting, but the stakes are actually pretty small—the FHFA allows Fannie and Freddie to use several other tools for loan modification, so it’s not as if the FHFA is choosing between principal reductions and doing nothing. The reason why it’s a big fight is because of the FHFA’s reluctance on the following:

• First, the FHFA has argued that principal reduction would cost Fannie and Freddie—and therefore taxpayers—more money than other tools like principal deferral. But the administration has sweetened the pot for principal reduction by tripling the subsidy they would give Fannie and Freddie (and other mortgage investors) for principal reduction, deflating the argument that principal reduction will cost Fannie and Freddie more than other loan-modification tools.

• Second, the FHFA is concerned that principal reduction might encourage some borrowers to fall behind on their payments in order to try to get a principal reduction. In other words, it gives borrowers an incentive to become “strategic modifiers.” Those who want the FHFA to allow principal reductions—including the Obama administration and many Democrats in Congress—think that concerns about borrowers trying to game the system as “strategic modifiers” are overblown, and that principal reduction is crucial for stemming defaults and foreclosures.

Regardless of what the FHFA decides in the coming weeks, the fuss over principal reduction underscores the three big lessons about US housing policy:

U.S. housing policy is a sloppy patchwork. Eligibility for government mortgage-relief programs depends on who owns, guarantees, or insures your mortgage. That’s true not just for HAMP and HARP; it’s also true for the robo-signing settlement, which calls for $25 billion in principal reductions, other loan modifications, refinancing, and compensation for those who lost their homes to foreclosure—but only for borrowers whose mortgages are serviced by the five banks in the settlement. If your mortgage is serviced by someone else or owned by Fannie or Freddie, no money for you.

This is obviously inequitable: people in similar financial straits with similar mortgage balances get treated differently based on who has their mortgage. It also means that most new housing policies are incremental, affecting some borrowers and not others, rather than being holistic. Ultimately, it’s hard to solve a big problem like 11 million underwater borrowers in small steps.

It’s all about who pays. Most housing policies—including refinancing and loan modifications—will cost somebody something, and that somebody is usually taxpayers or investors. In the FHFA principal reduction debate, “who pays” is front and center because the FHFA’s acting director is responsible for the financial health of Fannie and Freddie. Boosting the government subsidy for principal reductions shifts “who pays” from Fannie and Freddie to the Treasury, which might soften the FHFA’s objection to principal reduction. Of course, since the government bailed out Fannie and Freddie, ultimately “who pays” is the taxpayer regardless of whether the Treasury (i.e., the taxpayer) is subsidizing Fannie and Freddie.

Part of the game of “who pays” is to make it harder for financial overseers and budget-watchers to object. Make no mistake: “who pays” is a partisan issue. Republicans care more about reducing the federal deficit than Democrats do, but Democrats are more eager to help homeowners avoid defaults and foreclosures, according to Trulia’s survey on housing policy and the 2012 presidential election. That’s one reason why Democrats are coming down harder on DeMarco than Republicans are.

Moral hazard is a political landmine. Here’s where housing politics get ugly. If you help people in financial trouble, it’s really hard to distinguish who had unavoidable bad luck from who made foolish or risky choices. Worse, policies can create “moral hazard” if they encourage people to take risks or game the system because they believe someone else will pick up the tab. Reasonable people can have different views about how big a problem moral hazard is: no one really knows how many borrowers will purposely fall behind on their payments in the hopes of getting an FHFA-approved principal reduction.

But what’s clear is that accepting moral hazard is a partisan issue. Trulia’s survey revealed that 61 percent of Democratsagreed that “helping people keep their homes is the right policy even if it helps some undeserving homeowners,” but only 38 percent of Republicans agreed. By focusing on moral hazard and on the cost to taxpayers, the FHFA has taken stances that fit better with the Republican view of housing policy.

No wonder DeMarco has been getting an earful—at least on this issue—from the Democrats.

What does a “normal” housing market look like, and how far away are we? To figure this out, each month Trulia’s Housing Barometer summarizes three key housing market indicators: new construction starts (Census), existing-home sales (NAR) and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.

March data, released over the past few days, showed:

—Construction starts slipped in March. The decline in annualized starts from 694,000 to 654,000 pushed starts from 21% of the way back to normal in February down to just 17% in March.

—Existing home sales also slipped, from 4.60 million to 4.48 million. Home sales fell from 48% of the way back to normal in February to 41% in March.

—The delinquency + foreclosure rate improved. (Remember, on this measure, lower is better.) In March, 11.23% of mortgages were delinquent or in foreclosure, versus 11.70% in February, which means that this measure improved from 32% back to normal in February to 37% in March.  As we learned from Truila’s December 2011 consumer survey, this is key for consumer confidence: 47% of Americans said fewer defaults and foreclosures would give them confidence that the housing market is getting back on track – more than any other indicator of recovery.

Averaging these three back-to-normal percentages together, the market is now 32% of the way back to normal. That’s a bit lower than in January and February, when the market was 34% of the way back to normal, but still higher than it was in 2011. In fact, the market was only 23% of the way back to normal this time last year.

Bottom Line: The housing recovery is progressing, though it’s taken one step backwards after a few strides forward.

Ever wonder where the other half lives? (We do, though it’s mainly because we love to gawk at the homes of the rich on our sister site, Luxe Living). But just how far do you have to look to find mega mansions like this $38M hilltop mansion on Billionaire’s Row (aka, where the most expensive homes in San Francisco, between Lyon and Divisadero on Broadway Street, are located)?

Then there’s an even bigger, more relevant question: is it possible to find a home in that same neighborhood at a non-billionaire price? In this case, the answer is “yes.” A few blocks away, but still in the same ZIP code as the homes on Billionaire’s Row, is this relatively affordable $300K 2-bedroom condo.

The bottom line is—in neighborhoods like this, with homes for sale at a wide range of price points, you’ll have a better chance of buying a place near the upper crust and enjoying the same ritzy neighborhood amenities (such as schools, shops, parks, etc.) that the rich enjoy, even if you can’t afford the mansion. Meanwhile, in neighborhoods where home prices are very similar, you’ll find either all expensive homes or all cheap homes, since the mix of homes usually has a pretty big impact on the vibe of a neighborhood.

So to figure out which neighborhood is which (when it comes to home price ranges), we’re going to do a monthly spotlight on the range of asking prices within neighborhoods in different major cities across the country. And to kick things off, we’re going to start with an inside look at our hometown of San Francisco.

What we found is that the most expensive SF ZIP code (based on median asking price) is 94123, which includes the Marina, Cow Hollow and Pacific Heights. Meanwhile, the cheapest ZIP in SF is 94124, which includes Bayview and Hunter’s Point. To put this into perspective, the median home in Marina/Cow Hollow/Pacific Heights is 3.5x more expensive than the median home in Bayview/Hunter’s Point.

But what’s really interesting is what’s happening within neighborhoods.  We know that the Marina/Cow Hollow/Pacific Heights is the most expensive neighborhood in SF, but is it only made up of mansions?  Can someone who’s not working at Facebook or Instagram afford to live in that neighborhood and take advantage of the same amenities that the millionaires have access to?  That’s the burning question when it comes to the range of home prices in different neighborhoods—is there a selection of homes for sale at different price points? Or is the cost of buying a home in the neighborhood the same for most homes?

To figure out the range of asking home prices within different neighborhoods, we took all the for-sale homes listed on Trulia.com in 2011 in each SF ZIP code and identified the 90^th percentile asking price (aka the price of a home that’s MORE expensive than 90% of the other homes in its ZIP code) and the 10^th percentile asking price (aka the price of the home that’s MORE expensive than only 10% of the other homes in its ZIP code).

We then calculated the Home Price Range Index by dividing the price of the 90^th percentile home by the price of the 10^th percentile home. Here’s an example of the calculation for the visual learners out there:

Neighborhood: Hundred Acre Woods
(where Christopher Robin and Winnie-the-Pooh play)

90^th Percentile Asking Price: $1 million (aka Rabbit’s Home)

10^th Percentile Asking Price: $100,000 (aka Eeyore’s Home)

Home Price Range Index = $1,000,000 / $100,000 = 10

Interpretation: Rabbit’s home is 10x more expensive than Eeyore’s home

So since 94123 has a Home Price Range Index of 5.8, this means that a 90^th percentile home in that neighborhood is 5.8 times more expensive than the 10^th percentile home.

In that same vein, a neighborhood with a higher Home Price Range Index means that there is more home price variation than a neighborhood with a lower Home Price Range Index. Thus, 94133 (HPR Index =6.8) has a bigger range in home prices than 94134 (HPR Index = 2.1).

After crunching all the numbers, we created an interactive infographic to show which neighborhoods have a wider spread when it comes to asking home prices. Here’s what we found.

The largest Home Price Indices in San Francisco are in 94133 (which includes Fisherman’s Wharf, Russian Hill and North Beach) where the most expensive homes are 6.8x more expensive than the cheapest homes. So if you’re set on living in this area, but aren’t willing to shell out $2.8M for a high-end home, there are still plenty of homes under $1M that will allow you be a part of this neighborhood and be  kinder to your pocketbook.

If you look at the top five ZIPs with the biggest ranges of asking home prices, you’ll notice that they’re all in the northern part of the city (check out the maps below).

Since the housing stock in these parts are older and denser, you’ll probably have more luck finding a “bargain” fixer-upper (relatively speaking) alongside a multi-million dollar pad.

Home prices are more uniform in places that are farther out from the center of the city and more recently built, like Portola, Excelsior and the Sunset. As such, it’s not surprising that the narrowest range of prices is found in 94143 (Portola, Visitacion Valley and Excelsior) where the priciest homes are only 2.1x more expensive than the cheapest homes. If you live in one of these neighborhoods, it’s likely that your home’s asking price will be pretty similar to your neighbors’.

So, what does this mean if you’re looking to move? Long story short, it’s just another reason why “location! location! location!” needs to be your house hunting mantra. Because for $600k, you could have one of the nicest homes in Bayview/Hunter’s Point, but you could also have one of the cheapest homes in the Marina/Cow Hollow/Pac Heights. Choose wisely. The decision is yours and yours alone—would you rather live in a neighborhood where all the homes are more or less equally priced, or would you rather live among a mix of mansions and modest homes?

What do you think of our little analysis, and, more importantly, where we should head next?