3 measures that matter for a housing market's health
Lots of factors influence how well or poorly a local housing market will do, but The Wall Street Journal's David Crook argues that you can boil them down to three essentials. And no, it's not location, location, location.
First, jobs. Second, the price of homes vs. the cost to rent. Third, foreclosures.
Makes sense. If the local economy isn't growing, you won't have a growing number of people able to buy. If it's a lot more costly to buy than rent, tenants aren't going to be rushing to purchase -- not in these post-boom days, anyway. And a flood of bank-owned properties on the market makes it harder for regular homeowners to sell.
He offers a "yes, but" to his second rule-of-thumb: "Beware the outliers. Extremely low price-to-rent multiples can be warning flags for seriously depressed markets that are glutted with unsold properties."
Do you think these three factors are the most important measures for a housing market, or do you have others you prefer?
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Comments
Not to argue, Jamie, but location is part of all 3 of those factors... which is why it is NOT a standalone factor. Proximity to jobs matters, as does proximity to foreclosures or unsold new housing. Some areas have decent job markets combined with a tighter housing markets--places like Canton and Federal Hill come to mind. Pretty close to downtown combined with limited buildable land to throw up new housing.Outer-ring suburbs are going to end up just utterly devastated when this is all said and done. Too much housing supply and too few non-housing-related jobs. Most of those construction and mortgage related jobs are never coming back, at least not in the space of this generation.
Posted by: chappy10 | June 22, 2011 12:58 PM
Argue anytime, chappy10!
Posted by: Jamie Smith Hopkins | June 22, 2011 9:31 PM
One glaring omission is crime. Why do you think that no one wants to live on north avenue?
Posted by: elweedz | June 23, 2011 9:41 AM
I'm guessing the impact of crime will show up in at least one of those three measures, but you never know. Crime is definitely a key issue for people searching for a place to live.
Posted by: Jamie Smith Hopkins | June 23, 2011 9:44 AM
The jobs category, if you read it broadly, probably is a decent proxy for crime. What I mean by that is, areas where people have decent jobs and there are decent jobs nearby probably coincide pretty neatly with areas with low or manageable amounts of crime. Through policing, the city can pretty much pick and choose which neighborhoods it will keep safe or cede to low level criminal activity. Areas with income and property tax payers get good protection.
The North Avenue point is well-taken... there are some gorgeous and large houses along there, but they are run-down and many are vacant. It's a real shame.
Posted by: chappy10 | June 23, 2011 11:07 AM
In a normal market I would agree. But in this market you have people with bad credit for having lost their homes to foreclosure, tightening credit and conditions by the banks, failed confidence that housing prices will rebound anytime soon and people changing work positions often which means moving often. Add it up and you have a greater number of vacant homes, increased demand for rentals and low home prices. A lot of homes have been trashed and nobody wants to put good money into homes that will not go up in value.
Posted by: Merrill McCracken | June 23, 2011 12:39 PM