Home prices fell in December to the lowest levels since the housing crisis began in mid-2006, according to the Standard & Poor’s Case-Shiller Home Price Index. While other housing statistics certainly suggest that a recovery may be underway, home prices and foreclosures continue to point to a struggling market.
Trulia, an online real estate search and marketing site, recently published its Housing Misery Index. The index ranks each state’s housing market by the change in home price and the rate of delinquencies and foreclosures. Looking at housing and economic data from a number of sources, 24/7 Wall St.’s analysis of Trulia’s index finds that the states with worst scores suffer from many of the same problems.
The Housing Misery Index shows the clear impact of the housing market bust on local economies and individual homeowners. The drop in home prices captures the impact on household wealth and consumer spending, Trulia’s chief economist, Jed Kolko, told 24/7 Wall St. in an interview. Meanwhile, delinquencies and foreclosures reflect the number of residents struggling to keep their homes. “Bigger price declines plus more delinquencies and foreclosures equal greater misery,” Kolko says.
Most of the states with the worst housing misery scores are also ones that experienced some of the greatest home construction booms during the first half of the decade. When the market collapsed, states such as Arizona, Nevada, Florida and California became flooded with large inventories of unsold homes and high vacancy rates. According to Kolko, “These states had the most overbuilding during the bubble, and those empty homes have caused prices to fall and are still keeping prices low.”
Not all of the states with the highest housing scores are suffering from overbuilding during the housing boom. For some, the scores simply reflect permanently weakened home demand that is the result of decades-long industrial decline. In Michigan, for example, home prices have dropped as critical industries, including auto and chemicals, have substantially contracted their operations in the state. The persistent lack of demand for housing simply was made even worse by the nationwide recession.
In many of the worst-off states, demand is finally on the rise. States like Florida, Arizona and Nevada, which suffered during the housing bust, still appeal to many buyers. These states “are still top retirement destinations and are now more affordable than they have been in years. Low prices will attract people to these areas longer-term as those markets return to normal,” Trulia’s chief economist says.
Of course, for states where the housing collapse was not the result of overbuilding, as is the case for Michigan and Rhode Island, the long-term outlook is not as good. Although home prices are at bargain prices in these states, a meaningful increase in new home buyers is missing. These local economies are suffering from long-term problems that likely will continue after the national housing market has recovered.
These are the 10 states with the most miserable housing markets.
10. Maryland> Housing misery index: 31.6
> Home price decline from peak: 23.7% (12th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -2.4% (14th largest decrease)
> Unemployment (Dec. 2011): 6.7% (15th lowest)
Maryland is the wealthiest state in the country in terms of median household income. It also happens to have the third-lowest poverty rate in the country. Despite this relative wealth, the state’s housing market has suffered from a number of problems. Since their peak, home prices in Maryland have dropped 23.7% — the 12th largest decrease in the nation. Home prices are projected to continue to fall through the third quarter of this year. However, from that quarter through the third quarter of 2013, home prices are expected to turn around, increasing 4.4%.
9. Washington> Housing misery index: 32.8
> Home price decline from peak: 26.6% (8th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): +0.4% (16th smallest increase)
> Unemployment (Dec. 2011): 8.5% (17th highest)
Since their prerecession peak in the third quarter of 2007, home prices have fallen 26.6% in Washington. This is the eighth-largest drop from peak in the country. In 2011, relatively few homes were in foreclosure in the state, standing at 1.3% of the total market. By the third quarter of this year, home prices are projected to increase just 0.4%, one of the smallest increases in the country. However, the following year, the market will finally begin to rebound in the state. Fiserv estimates home values will increase by nearly 10% between Q3 2012 and Q3 2013.
8. Georgia> Housing misery index: 34.0
> Home price decline from peak: 26.0% (10th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -1.7% (16th largest decrease)
> Unemployment (Dec. 2011): 9.7% (8th highest)
Georgia had the fifth-highest rate of foreclosures at the end of 2011, and homes on which owners were delinquent 90 days or more on mortgage payments in the country at 8%. Georgia’s home prices also have fallen 26% since their peak — the 10th-largest drop. This, combined with the fact that home prices are expected to drop by another 1.7% by the third quarter of this year, has caused construction to remain particularly low in many areas. For example, in Atlanta, the state’s largest city, construction continued at less than one-fifth of prehousing bust levels in January of this year, according to Trulia.
7. Rhode Island> Housing misery index: 34.5
> Home price decline from peak: 27.0% (7th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -0.5% (23rd largest decrease)
> Unemployment (Dec. 2011): 10.8% (3rd highest)
Like Michigan, Rhode Island’s economy has continued to suffer from long-term problems, and residents seem to agree. According to Gallup’s Job Creation poll, fewer employers are hiring in the state than anywhere else in the country at the moment. According to a separate Economic Confidence Poll created by Gallup, just 5.4% of those polled in Rhode Island believe the U.S. economy is in good or excellent shape. From their peak in the second quarter of 2006, home values in the state have fallen 27%, the seventh-biggest decline from peak in the country. Median income is above-average in Rhode Island, but unemployment is at 10.8%, the third-highest rate in the country. According to Fiserv, home values in the state are expected to recover at a rate of just 2.5% per year by the end of 2016, the ninth-lowest rate in the country.
6. Idaho> Housing misery index: 34.5
> Home price decline from peak: 29.3% (6th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): +4.9% (the largest increase)
> Unemployment (Dec. 2011): 8.4% (18th highest)
Home prices in Idaho did not begin to significantly drop until 2008. From the third quarter of that year through the third quarter of 2011, home prices fell 29.3%, the third-largest peak-to-current decline in the country. From the third quarter of 2010, prices have dropped 8.3%, the second-largest amount. However, the state is forecast to make an exceptional turnaround. By the third quarter of 2012, home prices are projected to recover by 4.9%. Over the next five years, prices are expected to increase by 7% — the largest increase in the country.
5. Michigan> Housing misery index: 36.6
> Home price decline from peak: 30.1% (5th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -7.0% (4th largest decrease)
> Unemployment (Dec. 2011): 9.3% (10th highest)
During the housing boom, Michigan did not experience a period of rapid industrial growth and home construction. But instead of escaping the worst of the housing boom and bust, Michigan’s home prices and general economy continued to worsen during the second half of the decade along with the rest of the country. From peak value in the third quarter of 2005, home values in Michigan have fallen 30.1%. Additionally, unemployment is 9.3%, the 10th highest rate in the U.S.
4. California> Housing misery index: 53.7
> Home price decline from peak: 46.7% (3rd largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -4.2% (6th largest decrease)
> Unemployment (Dec. 2011): 11.1% (2nd highest)
California continues to suffer greatly from the recession. The nation’s most populous state has the second-highest unemployment rate in the country at 11.1%. Home prices have dropped 46.7% since their peak, which occurred in the first quarter of 2006 — the third-largest drop in the country. This large decline is the result of the construction boom that took place in the state prior to the housing crisis. Home prices are expected to fall another 4.2% by the third quarter of this year due to an overabundance of cheap housing.
3. Arizona> Housing misery index: 55.0
> Home price decline from peak: 47.9% (2nd largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -7.2% (3rd largest decrease)
> Unemployment (Dec. 2011): 8.7% (15th highest)
Arizona also went through a period of significant overbuilding that has left its housing market hurting. Since home prices peaked in the state, they have fallen by 47.9% — the second largest amount in the country. The excess inventory of inexpensive housing is expected to continue to depress prices for some time. Prices are projected to drop another 7.2% from the third quarter of 2011 to the third quarter of 2012 — the third largest decrease in the nation. According to Trulia, Phoenix, Arizona’s largest metropolitan area, has one of the highest vacancy rates in the country, at 10.1%.
2. Florida> Housing misery index: 62.2
> Home price decline from peak: 44.8% (4th largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -8.6% (2nd largest decrease)
> Unemployment (Dec. 2011): 9.9% (6th highest)
Florida is among the states hurt worst by the housing crisis. Since the third quarter of 2006, when home prices in the state peaked, they have fallen 44.8% — the fourth-largest drop among all states since their respective peaks. The pain is not yet over for Floridians. From the third quarter of 2011 to the third quarter of 2012, home prices are projected to fall by another 8.6% — the second-largest drop over this period. At the end of 2011, Florida had the highest rate of homes in foreclosure or that have been delinquent in mortgage payments for at least 90 days in the country at 17.4%.
1. Nevada> Housing misery index: 73.4
> Home price decline from peak: 60.0% (the largest decrease)
> Projected home price change (Q3 2011 – Q3 2012): -13.9% (the largest decrease)
> Unemployment (Dec. 2011): 12.6% (the highest)
Leading up to the recession, Nevada was one of the fastest-growing economies in the country, largely fueled by booming real estate and construction industries. When the housing market collapsed, what had once been a boon became a burden. Home prices in the state have fallen a whopping 60% since their peak in the first quarter of 2006 — the largest drop in the country. Unemployment in the state is also the highest at 12.6%. And 13.4% of homes were in foreclosure or delinquency at the end of 2011 – again, more than anywhere in the country. Home prices are projected to continue to fall by an additional 13.9% through the third quarter of this year, but Fiserv estimates that they will begin to gradually recover over the next five years.
Note: the Index is the sum of peak-to-Q4-2011 price decline (FHFA) and Q4 2011 delinquency (90+ days) plus foreclosure rate (CoreLogic).
Michael B. Sauter, Charles B. Stockdale and Ashley C. Allen
We
all know they story of "Peter and the Wolf" or the boy who cried
wolf—if one hears something over and again, despite how urgent it might
be, it loses its impact the more you hear it.
BY GREGORY ZUCKERMAN
