Home Prices: On The Rise, Or Too Soon To Tell?

Some time ago, I posted about how the economy creates money. I then read an informative book and clarified what I had learned in the earlier post with more information.

More recently, I noted that Planet Money had an interesting post recently dealing with home values.



This graph seemed like mixed news. First, it put the peak of the housing bubble in early 2006, not early 2008 like I thought. (It's amazing what info you miss when you're not paying attention.) Given the assertion I've heard recently that bubbles take as long to pop as they do to inflate, this gives the most likely bottom point earlier, hopefully sparing us some months or years of deflation.

On the other hand, this graph is based on the Case-Schiller 20-city composite. The blog noted later in the post a chart based on this info showing change in market share by city. Some city markets went up, some went down.

Which tells us nothing, really. We might just be missing a big piece of the puzzle.

Let's assume that sharply rising gasoline and diesel prices in 2008 had a lot to do with the sharp economic contraction that year. (I'm not making that assertion as an absolute, but just for the sake of argument; I don't have enough evidence to support it as Holy Writ.) Let's further assume that this sustained fuel price increase has convinced many that the "Drive until you qualify" philosophy of home ownership is pretty silly when the cost of commuting rises significantly.

With this in mind, examine the city-by-city changes in the Planet Money post. The biggest annual home value increases can be found in California cities, a state with some very real economic problems right now.

• Los Angeles, +6.0%
  
• San Diego, +10.8%
  
• San Francisco, +16.2%

By contrast, the biggest loser is Las Vegas, down 12% from last year.

Other than being in California, what do the three biggest winners in this list share in common? For me, the most significant factor is the sprawl the three cities suffer. Vast freeway networks connect these cities with suburbs in every direction not bounded by bodies of water, mountains or national boundaries. Contrast that to Vegas, surrounded mostly by desert.

Given a lack of technological innovation that disrupts an old economy, let's assume in an economic contraction that most of the professional and industrial activity (both light and heavy) will happen where it has traditionally happened. This means most of the jobs will stay in the cities.

This means that the job goers will soon calculate, given the sustained cost of commuting, that it makes economic sense to relocate closer to work. Which means that the greatest losses to home values will be felt in suburbs and bedroom cities, the greatest gains in cities with gainful employment to offer workers needing to shorten their commutes.

I'd like to see more data than the C-S index provides, specifically maps showing the annual home value fluctuation in communities surrounding the cities on the index. I don't think we can truly appreciate what is happening to our economy, what societal shifts and changes in priority are occurring, without that and other clarifying information.

Thoughts?


Mostly cross-posted to the_recession.