Category: Chip Case

Housing: Will we escape a second dip?

Blogging from “The Reinvented City,” in Cambridge, Mass., a conference sponsored by the Nieman Foundation, the Lincoln Institute of Land Policy, and the Harvard Graduate School of Design.

Wellesley economist Chip Case, who studies housing bubbles (and who founded the Case-Shiller real estate report) says this downtown is odd because typically a housing oversupply means production slows, and the supply gets soaked up as new households form. But new household formation is lagging – it’s going away almost as fast as production is going away. Rental vacancies are up to 11%. This is odd. If people are getting kicked out of their houses (foreclosures, etc.) you’d think they’d be turning to rental housing. But they aren’t. (I’ll get to the why in a minute but it partly involves immigration.)

So the lack of household formation is disrupting the traditional pattern of how a downturn turns around. His verdict: “Jobs have to start coming back.”

There are positive omens: New housing starts are up. The existing inventory is down – a year ago the estimate was the housing inventory was an 11.5-month supply and now it’s 6.7 months. Sales of existing housing (which he thinks is a better gauge) are up to 5.35 million, up from 4 million of recent years/months. But 27 percent of those sales are auction sales (i.e. foreclosed houses).

His conclusion: There’s a greater than 50 percent chance we’ll get out of this recession without a second dip (the so-called W-shaped recession, as in the 1980s). But not as high as an 80 percent chance.

And immigration? I asked what was the cause for the lack of household formation. His reply: He thought it was people doubling up, as in college graduates without jobs moving back in with parents, families moving in together, etc. That’s some of it, he says, but a demographer he talked with recently told him that immigration is turning around.

And that doesn’t mean that there’s just less of an increase. People are going home, he said. “And that’s bad for us – despite what the talk show guys say.” The reason is that the shrinking number of households is keeping the recovery from, well, recovering.

Case of Case-Shiller dishes

(More from “The Next City” conference last weekend in Cambridge. I encountered blogus interruptus when my Mac laptop went on strike. I’m doing a series of notebook-dumping posts.)

Chip Case (right), Wellesley College economist and a founder of the Case-Shiller Home Price Index, was quite entertaining and not what you might expect from an academic in “the dismal science.”

A Chip Case joke: “I had an economist call me the other day, said he couldn’t sell his house and what should he do. I said, ‘For Christ’s sake you’re an economist! It’s worth — I hate to tell you — what someone’s willing to pay for it!’ “

Chip Case prediction on the commercial real estate: “It’s the next shoe to fall.” Every worker lost (and the U.S. job loss from December 2007 to March 2009 has been 5.1 million), creates an average vacancy of 180 square feet. “That stuff is still being held on the books of banks at par,” he said.

Case response when asked about the so-called “American Dream of Homeownership”?
“It’s largely bulls—.” He went on to say, “Rental is better for a lot of people (unless they bought during a boom).”

John King, urban design writer for the San Francisco Chronicle: What about all the starter-home suburbs?
Case: I don’t know. They’re going to stagnate.

Me (buttonholing Case after his talk): What advice would you give to governments and policymakers on how to deal with stagnating starter home suburbs?
Case: I’d appoint a housing czar, inventory what’s out there, what condition it’s in, and start buying. Buy, and hold until it’s needed.

He then acknowledged state and local governments have no money. “The only government with money is the one that’s printing it.”

Housing expert: Upturn this year?

Chip Case, economist from Wellesley University and a creator of the Case-Shiller Housing Index:
“I think you’re going to see things turn this year. In the housing market. Commercial real estate is going to dominate the press in the next few months. [Because of banking issues.] But the story’s in residential … “

Case noted, wryly that his long-time Red Sox fandom proves he’s an optimist.

“Florida’s not going to die. Arizona is sick but it’s not gonna die.” His point is that people still want to live in warm areas.

“Florida and California alone are one-third of the [housing and real estate] value in the United States. California alone is a quarter of it.”

(This is at a conference on “The Next City” in Cambridge, Mass., sponsored by the Lincoln Institute of Land Policy, the Nieman Foundation and Harvard’s Graduate School of Design.)