And you thought there was just one US housing market.
Turns out, there are many regional versions that make up the national market whose ups and downs are being closely monitored after the massive collapse of a few years ago. And not all those markets are behaving the same way.
A recent post on The Bryan Ellis Investing Letter pointed out that the success of the housing recovery is a highly variable thing. And that just may depend on the political leanings of the states involved. It seems that by several key benchmarks for the recovery, red, or Republican- dominated, states are faring better than their blue, or Democratically oriented, counterparts.
A new study by RealtyTrac examined the state of housing individual states after the housing collapse in terms of four factors: the number of existing foreclosures, the percentage of homeowners considered to be “underwater,” the level of unemployment, and the movement of home prices. And in all those areas, the red states trumped the blue.
Fifty two percent of the markets in RealtyTrac’s survey claimed to be “better off” now than in the years just after the collapse. And of those markets, 78 percent were located in red states such as Tennessee, Kentucky, Kansas and Oklahoma. Markets in liberal leaning states like California, Washington and Florida appeared to lag behind.
The foreclosure factor
The foreclosure issue has been a major factor in slowing the housing recovery nationwide. After the collapse of 2007-2008, millions of homebuyers defaulted on their mortgages and most of those homes went into foreclosure. In some states – the “judicial” states – foreclosures involved court proceedings, while in non-judicial states the process was accomplished more quickly out of court. But the sheer numbers of foreclosures created a backlog that lasted years in some cases.
The handling of those foreclosures, according to the RealtyTrac study, may be a defining factor in the success of the Red markets. The Blue markets generally tackled the foreclosure problem with interventions such as homeowner bailouts and legislation aimed at correcting the problem; the Red states took a more laissez-faire approach, letting the process take its course.
The end result appears to spell success for the Red states, where the number of foreclosures is dwindling and the “foreclosure pipeline” isn’t clogged with years of stalled proceedings. That’s not true in many of the bluer areas, where those homes hit the markets in a trickle, then a flood, as legal actions and other processes draw to a close. Fewer homes in foreclosure mean more available for purchase, and more movement in the housing market overall.
“Under water” is the term describing struggling homeowners who may not be in foreclosure yet – but they’re definitely on the way, with chronic problems making mortgage payments. They’re the kind of homeowners that relief programs were designed for, with options like refinancing and even grace periods for making payments. Many of these homeowners are still dealing with the aftermath of the collapse, when they ended up with loans they couldn’t manage.
Once again, in the markets surveyed, Red wins, most likely for reasons related to the foreclosure situation. These states had fewer underwater homeowners than the Blue states did.
Another factor in the perceived success of the housing market in most of the Red states surveyed had to do with employment, with the Red states posting lower levels of unemployment – a key stat for the success of housing, since it drives the ability to qualify for mortgages and make down payments and monthly mortgage payments. The Reds beat the Blues here too, which contributes heavily to the overall success of housing in those states.
One marker of a healthy housing market is rising home prices. That signals a strong overall economy with people able to pay those prices. But there’s a downside. If prices rise too much, too fast, they can outstrip the ability of buyers to afford them. And that means unsold homes that drag the market down.
In the majority of the Red states surveyed, home prices were rising – but at a moderate pace that allowed buyers to keep up with them. That means a briskly moving market where the various aspects of the process – lending, borrowing and buying – are in sync. That’s not quite the case in the more metropolitan Blue areas, where home prices in some larger markets, such as those in California, have made quick jumps that put many homes out of the reach of typical buyers.
Of course, it’s a great oversimplification to attribute the success of some housing markets solely to their political orientation. Many of the so-called Red states are more rural, with fewer large metropolitan areas and a smaller population that’s often less mobile. Those coastal states that skew Blue boast some of the country’s largest cities, with the attendant problems of limited real estate growth, high property values and a shifting employment picture.
Regardless of those caveats, though, this kind of analysis serves to point up what Jason Hartman’s been saying all along. All markets are local, with their own profiles created by a complex combination of factors. And smart investors reap the best returns by taking advantage of those unique characteristics and diversifying their holdings in as many markets as possible –whether they’re Red, Blue or something in between. (Featured image:Flickr/byrdiegyrrl)
Ellis, Carole Vansickles. “Why Republicans Are Winning the Race For Housing Recovery.” The Bryce Ellis Investing Newsletter. investing.bryceellis.com. 23 Oct 2014
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