The Housing Market (Especially In Raleigh)

Jack Hough and Jody Shenn are cautiously optimistic and very pessimistic, respectively, about the nation's housing market. 

From Hough:

I’m no evangelist for the financial merits of homeownership. Two years ago I argued here that house prices in the U.S. had grown so bloated that renting had become a better deal than owning. Since then, prices have plunged 30%, or about 36% after inflation. Nationally, they still seem too high, as I’ll show in a moment, and May’s gain could prove illusory -- SmartMoney’s Aleksandra Todorova points out that it disappears after adjusting for seasonality, and that the numbers probably got a temporary boost from government freezes on foreclosure proceedings.
Still, a handful of major markets now look affordable, and all of them are closer to sane. 

And from Shenn:

As of March 31, the share of homes mortgaged for more than their value was 26 percent, or about 14 million properties, according to Deutsche Bank. Further deterioration will depress consumer spending and boost defaults by borrowers who face unemployment, divorce, disability or other financial challenges, the securitization analysts said.
“Borrowers may also ‘ruthlessly’ or strategically default even without such life events,” they wrote.

I'm just finishing up my work on the housing market in Raleigh, and I stand by my earlier assessment. The number of homes built between 2002 and 2008 increased significantly more than the growth in population during that time. Additionally, the median value of these new homes far exceeded the median value of existing homes, while median household income remained relatively flat. 

The median price of homes sold in Wake County so far in 2009 was $205,000. The median value of homes currently on the market in Wake County is just over $265,000, more than four times the median household income. And not only is the supply of homes on the market substantially greater than the current demand - many for sale for six months or more - there are many hundreds of vacant lots already prepped for new residential construction sitting idle. Prices still have a long way to drop here.

In the longer term, to respond to Hough's piece about renting or owning, the aging of baby boomers will change the housing market significantly. 

First, as more boomers begin to retire, more larger homes will come on the market. Boomers will be downsizing, and with fewer people making up succeeding generations, and many of them wanting smaller homes than their boomer parents and uncles (you know, a smaller carbon footprint), demand for these homes will be depressed.

Second, over the longer term, as boomers begin to die, the supply of homes of all sizes will grow amid a smaller overall demand for housing; there are fewer people making up the generations succeeding the boomers. We should therefore observe overall housing price declines nationally in about twenty to thirty years.