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Where is Housing Going? That Depends on Where You are Looking
Jesse Richman, 6/2/2011

The latest release of the Case Shiller Index confirms the continued decline of the housing market that we have predicted on this blog for some years.  And the pain is likely to continue a bit longer.  If one assumes that house prices tend to keep pace with inflation (as was the pattern from 1950 through 1998) then an additional decline in real estate values seems likely in most cities.  Based on inflation adjustments to the January 1998 and January 2000 Case Shiller index, here are projections of the percentage decline or increase that may await particular cities if housing prices revert to the inflation-adjusted trend.   

An obvious caveat is that cities which have experienced substantial changes for the better in their economic prospects (e.g. Washington DC) may not experience the anticipated declines, while cities which have experienced significant declines in their economic prospects might be expected to fall farther.  Detroit is a great value, but only if the city can return to the levels of prosperity it experienced in the 1990s.  This currently looks unlikely, but if it does a smart investor could double their money. 

    Expected Change (1998 Estimate) Expected Change (2000 Estimate)
AZ-Phoenix PHXR 19.63% 30.26%
CA-Los Angeles LXXR -33.98% -22.15%
CA-San Diego SDXR -29.85% -15.12%
CA-San Francisco SFXR -19.02% 0.61%
CO-Denver DNXR -8.24% 8.35%
DC-Washington WDXR -32.51% -28.62%
FL-Miami MIXR -8.73% -4.86%
FL-Tampa TPXR -1.54% 2.78%
GA-Atlanta ATXR 22.60% 32.79%
IL-Chicago CHXR 11.92% 18.12%
MA-Boston BOXR -25.81% -11.37%
MI-Detroit DEXR 74.82% 94.74%
MN-Minneapolis MNXR 8.06% 23.72%
NC-Charlotte CRXR 18.85% 22.11%
NV-Las Vegas LVXR 31.96% 34.40%
NY-New York NYXR -29.65% -20.12%
OH-Cleveland CEXR 29.40% 34.93%
OR-Portland POXR -2.39% -1.55%
TX-Dallas DAXR   15.70%
WA-Seattle SEXR -13.36% -1.77%

What the table shows is a bifurcated housing market. 

There are some parts of the country where housing is now a bargain, and one might do well to buy.  Some markets have fallen well below what history would lead one to expect.  If you have always wanted to retire to Vegas, now is the time to consider investing.  You might lose money in the short term but so long as the local economy returns to relative prosperity, you stand to profit in the long term.  The same may go for Atlanta and for Phoenix.  Charlotte NC also looks promising. 

On the other hand, buying in San Diego, Miami, Boston, New York, or even Seattle is probably premature.  There is more falling to do.  Given the way some of the markets have fallen WELL below their 1998 inflation-adjusted values, it seems reasonable to expect significantly better buying opportunities in these markets if you wait.  Even DC, the current high-flyer, might decline if the U.S. government gets serious about spending cuts.   

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]