Originally published on Bloomberg View on July 8, 2012.
House prices, after falling for more than five years, are rising again. All the major sales-price indexes show that there have been modest national increases in recent months, even after adjusting for seasonal patterns.
When foreclosures and distressed sales are excluded from the data, prices are up even more. And we should expect further gains: The asking-price index, a leading indicator of sales prices, published by Trulia Inc. (where I work), climbed at an annualized rate of 3.3 percent in the second quarter of this year, adjusted for mix and seasonality, and rose in 84 of the 100 largest U.S. metropolitan areas.
Of course, if the U.S. economy falters, due to a deepening of the economic crisis in Europe or a wave of foreclosures, prices may reverse. For now, though, the increases are widespread. For the real-estate market and housing policy, this is cause for relief, but also for some concern.
One immediate effect of the price turnaround is that inventory tightens. In the past year, beginning even before prices rose, the inventory of listed homes shrank 20 percent, due to fewer foreclosures for sale and little new construction. Smaller inventory contributes to price increases; when there are fewer homes available, sellers can ask more. In some local markets, bidding wars have returned. Now, rising prices could even accelerate the decrease in inventory in the short term, as buyers act quickly in hopes of paying as little as possible, and sellers hold off listing their homes in anticipation of further price increases. In fact, 61 percent of people do expect prices in their local market to rise in the next year, according to a recent Trulia survey.0 comments
In Trulia’s latest American Dream survey, people told us they want to super-size their homes and expect prices to return to their bubble-era highs.
Trulia’s latest American Dream survey reveals that consumer optimism is rebounding– faster than the housing market itself is. Prospective homebuyers are looking at bigger homes, thinking more seriously about buying and optimistically hoping for higher home prices in both the short-term and long-term.
To get American’s take on homeownership, we worked with Harris Interactive to conduct an online survey of 2,205 U.S. adults between May 22-24 and 2,230 U.S. adults between June 4-6. For the full methodology, see here.
The Return of Super-Sized Homes
Remember when Americans started looking for smaller-sized homes after the bubble burst? Well, it turns out that downsizing was not here for good. After a few months of encouraging housing market news, the “bigger is better” way of thinking is making a comeback. Now, 27% of Americans say their ideal home size is over 2,600 square feet–up from 17% in 2011. Furthermore, the “super-sized” house category, 3,200 square feet and up, saw an even more dramatic increase in interest. While just 6% of those surveyed in 2011 expressed desire for a super-sized home, 11% now say they want a home of this size — that’s almost double a year ago.
It turns out that new-home builders spotted this growing appetite for size: the Census recently reported the average home constructed increased from 2,392 square feet in 2010 to 2,480 square feet in 2011.0 comments
From Provincetown to the Castro, gay men and women have made neighborhoods their own. Many are pricey, but we’ve found some affordable neighborhoods where you can be out and proud.
In honor of Gay Pride month, when New York, Los Angeles, San Francisco, and many others cities across the country hold their annual parades, we wanted to find the gayest neighborhoods across America. No surprise that San Francisco’s Castro neighborhood is at the top of the list, but throughout the country there are suburban and small-town neighborhoods with high concentrations of gay people. Even in the big, expensive cities, it’s possible to find a gay community without spending a fortune. And the picture looks different for gay men and women, who often cluster in very different neighborhoods even in the same metro.
Here’s what we did. For each ZIP code in the U.S., we calculated the share of households that are same-sex male couples and same-sex female couples, based on the 2010 Census. Then, we combined the Census data on where gay people live with median price per foot of listed homes in each ZIP code on Trulia over the past year.
(The fine print: The Census doesn’t ask sexual orientation, of course, so the only way to measure gay neighborhoods is based on where couples live. The Census data requires some corrections and adjustments, described here. Finally, ZIP codes don’t line up perfectly with neighborhoods, but we did our best to use the closest neighborhood names that correspond to the ZIP codes in our analysis.)0 comments
After three straight months of price increases, the May 2012 Trulia Price Monitor showed no change in asking prices from April. But, at the same time, rent increases keep accelerating.
Each month we publish the Trulia Price Monitor and Trulia Rent Monitor, which are the earliest leading indicators of how asking prices and rents are trending nationally and locally, adjusted for the mix of listed homes and seasonal factors. Here’s the scoop on how prices and rents did in May.
After Three Months of Increases, Asking Prices Flat in May
Asking prices on for-sale homes were unchanged in May month over month, seasonally adjusted. Because prices rose in February, March and April, prices remain 1.6% higher in May than one quarter ago, and most of the country has seen price increases: 86 of the 100 largest metro areas had quarter-over-quarter price increases in May, seasonally adjusted.
May 2012 Trulia Price Monitor Summary
|% change in asking prices||# of 100 largest metros with asking-price increases||% change in asking prices, excluding foreclosures|
|Month-over-month, seasonally adjusted||0.0%||(not reported)||0.4%|
|Quarter-over-quarter, seasonally adjusted||1.6%||86||2.1%|
The Facebook IPO has made a lot of my Bay Area neighbors very rich, at least on paper. And many more of my neighbors are hoping that Facebook’s IPO will set off a strong wave of housing demand that lifts local prices and finally consigns the housing bust to history. And I say to my neighbors: be careful what you wish for. Rarely are there winners without losers. Here’s what Facebook’s IPO – and the strengthening local economy – mean for the Bay Area housing market.
Over the past year, house prices have picked up and rents have been booming in the “Facebook Metropolitan Area” — the 10-mile circle around the Facebook’s Menlo Park campus, roughly from Foster City on the Peninsula down to Sunnyvale in the South Bay, plus Union City and Fremont just across the bridge in the East Bay.
Change in asking prices*
Change in asking rents*
|Facebook Metropolitan Area||
|San Francisco Bay Area (including Facebook Metro Area)||
Note: based on the Trulia Price Monitor and Trulia Rent Monitor, which adjust for the mix of homes and neighborhoods. Changes are year-over-year.
Even before today’s IPO, home prices and rents were rising in the Facebook metro area faster than in the San Francisco Bay Area overall. As Facebook’s flush owners realize their gains, there’ll be even more money chasing real estate in the Facebook metro area and in the San Francisco Bay Area generally. This new wealth should push up prices more than rents since many of Facebook’s employees will make the move to homeownership. And, Facebook aside, job growth in the Bay Area is already strong, so the Facebook IPO is adding fuel to an existing fire.
The Facebook IPO will create lots of winners in the Bay Area. These include employees and investors, of course, who can spend their new wealth on homes or whatever else they want. Other winners are people and businesses who have what Facebook millionaires want – including homeowners looking to sell, luxury car dealers, exotic-adventure-vacation tour operators, and so on. The dry cleaner and coffee shop owners in Menlo Park will be happy, too, but Facebook won’t change their lives: Facebook employees might celebrate their IPO by buying a car ten times more expensive than their current clunker (just don’t drive it to work), but they’re probably not going to go from one latte a day to ten.
But because Facebook is in the Bay Area, its IPO will create losers. Here’s why. If Facebook were in Texas or North Carolina, developers would have been building new homes in anticipation of this day. But in the Bay Area, water and the hills leave little land for development: the area in the bay under the Dumbarton Bridge would be an easy commute to Facebook if you could only build housing on the water. In addition, building regulations make development difficult on the precious flat land that exists. As a result, little new construction is underway in the Bay Area – far less than in other metros with similar job growth. Furthermore, San Francisco and San Jose were spared the worst of the housing crash and have relatively few homes in foreclosure. Without new construction or foreclosed homes coming onto the market, Bay Area housing inventory is vanishing: it’s down 40% year-over-year.
So all that new Facebook money will be competing with the rest of us for the limited supply of homes and apartments. Even if you’re that luxury car dealer watching your sales go through the roof, the kid you just sold the Lamborghini to will outbid you for that home in Woodside. Rising home prices and rents – good as they are for current homeowners and for landlords – raise the cost of living in the Bay Area. That means that businesses across the Bay Area will need to pay their employees more to keep up with rising housing costs – or decide to conduct their business elsewhere.
These are by no means new challenges for the Bay Area. Steady demand for housing, combined with tightly constrained supply, has kept real estate prices in the Bay Area – and in much of California — among the highest in the country for decades. Before this recession, when people in the Bay Area said “housing crisis” they meant a shortage of affordable housing. The recession and drop in home prices pushed concerns about affordability into the background, with foreclosures and overbuilding taking center stage. But as the Facebook IPO sends home prices higher, we’ll look back at today as the day the Bay Area stopped worrying about falling prices and remembered how expensive it is to live and do business here.0 comments