The National Association of Realtors announced this week the average market time for a home in America is returning to pre-bubble levels at 69 days. This is being heralded as a sign that housing prices are not only stabilizing but also equalizing in leverage between seller and buyer.
The metric is an important measure of supply and demand in housing. When time on the market is very short it indicates very high demand for relatively low supply. Conversely, a long average market time indicates weakness for sellers and a deflationary effect in pricing. A lot of publications are quick to use this metric as a canary for good economic conditions in housing, but very little attention is given to the negative effects of rising home prices.
First, a caveat; we know many people are struggling with upside down mortgages hoping for a $20,000 or $30,000 increase in neighborhood sales in order to sell and move on. Timing, misinformation, and a range of speculative guidance from housing leveraged companies promoting television shows to borderline unethical banking practices culminated in another hit to the middle class. A rise in demand accompanied with limited supply in areas like Miami, Phoenix, and Georgia (which was flooded with investment secondary properties) will help those in this condition.
Unfortunately, there is another other side of the supply/demand coin. Regions like Northern Virginia, San Diego, and Palo Alto have grown over the past half century into economic boom towns capable of commercial growth previously generated by the mega-cities of the Northeast and steel belt capitals. Northern Virginia, as well as other regions, was the product of the third economic epoch; the post-post-industrial revolution of intellectual property, communication, and consulting. The new economic hubs were created on the upper middle class model, unlike their working class predecessors, leading to homogeneous sub-urban development. The type of planning (often purposefully stagnated in speed not design) had no impact on the desire for people to live in these regions, millions migrated, and sub-urban growth had no option but to continued outwards.
Now we find ourselves at critical mass. Just under 2 million residents attempt to wedge into a relatively concentrated commercial business district every day. The design method has reach its maximum capacity and traffic has become a deterrent. Adjacency to the dense job centers has become the largest variable in pricing, sky rocketing even smaller homes to million dollar status.
Unfortunately, a region can not consist of just million dollar homes; new residents in service industries and graduates beginning careers can not afford to purchase. Correlating rental prices lock them into a cycle of sunk monthly costs. Without a pressure relief to the rising housing prices, employers begin to feel the impact of high cost of living and the eventual result is the relocation of jobs to less expensive regions.
This is where personal interest and community interest hit an impasse. I am a home owner; I get it. Less options close by means my property becomes more attractive. So, the obvious reaction is to constrict growth so that one can corner their piece of the market. Unfortunately this short-term selfish action has a long term detrimental effect and eventual collapse.
The healthiest market is that which balances new growth with rising population. This may create short term housing deflation but in the long run generates a sustained community economy. The rise of Tysons Corner will have a 3-5 year deflating effect on the prices of homes in McLean, Vienna, and Great Falls. However minute, it will even reduce housing prices through out the Washington Metro by simply providing greater, and more heterogeneous, housing options.
However, as Arlington has shown us, the prices return and become more stable and less dependent on supply/demand characteristics when a more concentrated urban corridor is created. The rise of amenities, transportation options, and economic opportunity eventually counter-act the reduction in prices to premium stock, while still providing less expensive multi-family and townhome units.
We home owners are always nervous about “the neighborhood going down the drain” and over crowding, but obstruction to all growth, even the kind that comes sustainably with developer concessions, is unhealthy in the long run. Northern Virginia is blessed to be such an attractive destination for people of all ages and backgrounds. Current residents must balance the retention of community identity with the detriment of stagnation.