Sept. 12 (Bloomberg) -- What if U.S. housing bears are wrong
and the home market is not peaking?
Let's assume for a moment that homebuyers and investors will
not be too chastened by high energy bills and mortgage rates
will stay about the same.
If the boom hangs in there, thank local economic growth and
job creation, low mortgage rates and demographics.
Housing is still appreciating, and U.S. home prices rose 13.4
percent as of June 30 from the same period a year earlier, according
to the Office of Federal Housing Enterprise Oversight, the agency
regulating the mortgage corporations Fannie Mae and Freddie Mac.
That was the largest annual increase recorded by Ofheo in 25
years. New home sales also set a record in July.
Population increases generally follow local job growth, although
some high-growth regions are certainly not mentioned in the same
breath as bubble markets.
Some of the strongest housing growth, with the exception of
Las Vegas and surrounding Clark County, is not in any of the
glamor havens on the coasts.
In examining the 100 fastest-growing counties tallied by the
U.S. Census Bureau from 2000 to 2003, Georgia easily led the
pack with the most new housing units. Almost one quarter (24)
of the fastest-growing counties on this list were in the state,
with 21 of those counties concentrated in the Atlanta area.
Fast Growth
Predictably, Florida was second on the list, with 10 of the
highest-growth counties, followed by Colorado and Virginia with
9 each, Texas with 7 and Minnesota with 6.
From 1990 to 2000, Georgia's population grew 26 percent to 8
million, with most of the gain in the Atlanta area. That's twice
the rate of increase for the U.S. at large during that period.
With all of its robust growth, why is Atlanta not on the list
of likely bubble cities?
There's plenty of land that can be developed, few geographic
or government restrictions and a much lower median home price
than in the Northeast or on the West Coast -- $166,829 as of
the second quarter, according to the National Association of
Realtors, an industry trade association.
Compare Atlanta to pricey San Diego, at an average home price
of $605,600 or Orange County, California, at $696,100 and it's
clear that several areas in the sunny Southeast offer palpable
potential gains for investors, homebuyers and employers.
As most savvy homebuyers in the Northeast or California can
tell you, building and geographic restrictions have curtailed
the amount of developable property. That has translated into
higher- than-average appreciation and a greater likelihood that
bubbles have formed.
Jobs Drive Homebuilding
What may bolster or stabilize housing prices over the longer
term, even if rates head north? Steady job creation that fuels
population growth and homebuilding.
Placer County, California, for example, an area straddling the
Sierra Nevada Mountains 100 miles northeast of San Francisco,
is a case in point. As the only California county on the Census
Bureau's top-100 growth list, Placer is benefiting from new job
creation and the exodus of Silicon Valley technology jobs.
Buoyed by robust employment growth, jobs in Placer County grew
25 percent from 1998 through 2003, compared with 1.6 percent
for the San Francisco Bay area and 8 percent for the state as
a whole.
``Job growth has been running from 4.5 percent to 5 percent
the last six or seven years,'' says Ed Graves, director of economic
development for the county. ``We led the U.S. in job growth from
2002 to 2003.''
Bolstering Prices
New jobs bring people who can then bid up housing prices. Placer
County, which is partially included in Ofheo's Sacramento statistical
area, showed a housing price gain of 121 percent over the past
five years and 25 percent through the second quarter.
Employment growth also correlates with home price gains in the
Washington, D.C.; New York, Phoenix, Los Angeles and Las Vegas
areas, which were the top-five job producing areas in July among
the largest metropolitan areas, according to the U.S. Labor Department.
By comparison, slow or negative job growth often holds back
housing prices.
The Detroit area, for example, lost more than 6,000 jobs during
the last year and 7.5 percent of its population over the decade.
As a result, housing prices in the Motor City area rose only
3.4 percent over the past year, lagging the national average
for home-price growth by a factor of four.
No Reason for Change
Even if 30-year mortgage rates rise above 7 percent and job
growth slackens, there's no reason to believe that patterns of
population migration will change quickly.
Aging Americans in the Midwest and Northeast will continue to
move to Sun Belt locales because of lower taxes and living costs.
That doesn't mean that the hottest markets won't see a nasty
shift in prices should mortgage rates head north. Speculators
are bidding up housing values in the most torrid markets, leading
to volatility in prices. The U.S. median home prices slipped
to $203,800 in July, versus $219,500 the previous month, according
to the U.S. Commerce Department.
Cheap mortgage money may eventually evaporate and housing bubbles
will burst. Those not interested in quick profits can buy low
and profit in the markets most favored by population and job
growth rather than buy high and get burned in the priciest markets.
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