Along with consumer worries about employment and healthcare, housing is one of the top three. The largest single line item of the average Seattle-Eastside household is housing. This comprises 31% of household income including mortgage payment or rent, taxes, insurance, utilities, and maintenance. For many, housing is not just shelter but a long term investment. Home building involving labor and materials has one of the highest economic multipliers (2.8x) and provides a major basis for local government and education tax revenues.
As part of the national economic recovery programs both the auto and housing industry were targets. The results, however, are quite different. Much was learned about this program. During this period, vehicle sales sharply increased and then, following the tax credit sales, immediately declined, but then recovered. The major long term economic benefit was that millions of older cars and trucks were removed permanently from returning on the used car market.
This has not been the case with the tax credit for home buyers which expired on April 30, 2010. Sales had declined in local and national housing to nearly the market lows during the September 2008 to March 2009, before the 2009 8000 tax credit program began to respond. In effect, the home buyers program, while similar to the auto program, had a strong casual effect but sustainability is very different. Previously owned housing did not get physically removed from the market.
Housing and employment have .86 correlations between these two variables. In other words, as employment growth changes so does housing sales. The hope was that employment growth would return but it hasn’t.
The economy is essence about balancing a set of complex independent variables. When the economy is not working as expected, political intervention often occurs, which sometimes works and other times there are unintended consequences. The fact does remain that with government policies influencing changes in interest rates on mortgages and underwriting standards, or tax polices, there almost always is a market response.
Here is the economic result. First of all 64.5% of the major markets in the U.S. have experienced an increase in median sales prices since a year ago. Unfortunately, King County declined 6.4% during the same period. The reason lies largely within the increases in active listings especially at the higher price points. The number of month’s supply under $749,999 is 7.1 months and then increases to 8.7 months under $999,999. It then moves to 13.9 months for homes over one million. What is especially important is that the tax credit program prior to the April 30, 2010 expiration resulted in reduction to the months of active listings--a low point of 3.1 months. This is especially evident within the affordable home prices.
The decline in median home prices locally is a function of the continued high number of foreclosures and heavy discounting. It is also the further decline in consumer confidence, increased worries about the federal deficit among those home buyers able to purchase, willing - but increasingly fearful that the economy recovery will be delayed.
Jim Hebert
8-16-10
