Bubble ?? Regional Trends tell the story

You may recall that there were significant declines in the housing values both on the West Coast and in the Northeast in the early 90’s and the gradual recovery of those markets leading up to their current highs today. Historically, the West Coast and Northeast housing markets have been cyclical (with large gains and subsequent declines in housing prices). This is in stark contrast to the more linear and stable historical price gains throughout much of the Midwest and South (where the prices for these regions are almost flat over the same period of time). The only exception to this would be the Florida market which has been more volatile historically than other markets in the South and remains that way to date.

The affordability index which computes how much a median income earner’s wages are required to pay for home ownership in a specific market are most telling. The last time the affordability index was as low for many of the areas along the West Coast and Northeast (specifically So Cal and Northeast, specifically Boston, New York City and Wash DC) housing prices plummeted upwards of 30% in some locales.

Much of the Southern California housing declines beginning in the 1990’s were attributable to the loss of defense and aerospace industry jobs starting in the early 90’s. Similar mass layoffs triggered housing significant declines in the Northeast during roughly the same time frame.

Low affordability alone cannot and does not always explain housing market behavior (think San Francisco Bay/San Diego area markets). Strong job creation and economic growth, coupled with demographic trends (think baby boomers), availability of developable land and finally macro-economic forces (interest rates still as 35 year lows) also factor in considerably in a specific housing market’s behavior.

Yet affordability remains one of the strongest indicators of a housing market’s behavior and overall health historically and moving forward.

For details and lots of numbers, visit the PMI Trends