Migration is heating up out of California again. (HT: John Wake)
The Contagion cities are far, far, away from the levels of housing starts in 2005 when out-migration was really kicking. In 2005, some of the out-migration was from Closed Access homeowners tactically selling into the boom. That had an effect on the shape of the bubble in the Contagion cities. Now, the out-migration is more focused on renters and households with lower incomes. It will be interesting to see how this plays out differently.
Rent inflation in Contagion cities is high now, but it is not triggering a particularly strong homebuilding market because middle class buyers can't get mortgages easily, so supply is constrained. To solve the supply problem, credit needs to be loosened, but that probably means rising prices in Closed Access and Contagion cities.
The recession that appears to be coming will probably slow all this down.
Problem is who would want to lend to homebuyers in closed-access cities where price:income ratios are high? You'd be lending on the basis of assuming price appreciation which never seems to end well.
ReplyDeleteIt's definitely destabilizing. Closed Access LTVs do tend to be lower.
DeleteThe RBA recently held rates flat citing financial instability, that is high house prices.
ReplyDeleteAnd you have Boston Fed President Eric Rosengren blubbering about real estate appreciation.
Property zoning has become a macroeconomic issue, but the macroeconomics profession appears unable to adjust.
The intuition that finance is behind property prices is a strong one. The Minsk idea that we can't have a stable economy because speculators will create new instability taps into deep human cognitive biases.
DeleteIt seems to me that one of the powerful insights of finance is the difference between systematic and idiosyncratic risk (I even named my blog about it!) The elimination of systematic risk is the definition of a civil, developed economy. This constant cheerleading for systematic instability as if it is useful is frustrating. Low risk spreads are a public good. Full stop. It seems that too many don't share our view on this.
Oops. "Minsky"
DeleteHere's an article from my town that relates (at least tangentially). Downzoning to single family in an attempt to keep out college students in favor of poorer current residents. I don't think this will end well, especially for the current residents. College kids will jam into single family houses too. Fewer units means rents will rise faster, not slower.
Deletehttp://www.philly.com/philly/business/real_estate/residential/As-North-Philadelphia-continues-to-gentrify-City-Council-re-zones-land-to-promote-single-family-housing.html
I wonder why in politics we have such a strong tendency for obstruction. Raising taxes, stopping immigration, preventing building, drug prohibition, liquidationism in monetary policy, various regulatory obstructions like the current mortgage regime, etc. I suppose it's because it's easy and it gives us a false sense of control. It's certainly not because they are effective.
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