Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Those of you looking for a bottom in home sales now have a reason to be cautiously optimistic. Pending home sales—which are counted when contracts are signed—rose for the third straight month in February. February’s increase was just 0.8%, but since economists polled by Reuters—I wasn’t one of them—were looking for a 2.3% decline, it’s still a good number especially since mortgage rates rose sharply last month.
Pending home sales rose 6.5% last month in the Northeast, ticked up slightly in the Midwest and South, but fell 2.4% in the West. While activity in all regions was down significantly compared to a year ago, the West had the biggest year-over-year drop at 28.4%. Some attribute these declines in the West to the fact that it’s the most expensive region for housing, and higher mortgage rates would have a greater impact there.
That said, the recent increase in contract activity is very good news for all markets. It tells us demand for housing is back, and when rates fall—which they have recently—buyers are moving quickly.
Now on to the second reason housing in the East is on top right now.
Home Prices Rising in the East, but Falling in the West
According to Black Knight’s home-price index, January home prices rose in 36 of the 37 biggest metro areas east of Colorado in January, while falling in all the 12 major markets west of Texas.
Why is the West lagging the rest of the country? The article points out that housing markets are driven primarily by local factors such as affordability, the number of homes for sale and hiring. As I mentioned in the first article, homes in the West are more expensive than in the rest of the country, with prices driven up by the tech boom that began in the 1990’s. Now that tech companies are laying off workers, it’s not surprising that home prices are falling sharply in areas like San Francisco and Seattle.
Over the past year, Texas and Florida have posted a 4.6% increase in employment, second only to Nevada’s 5.0% gain. So, it shouldn’t be a surprise that some of the biggest increases in housing prices have been in those two states. Some may attribute the West’s decline to the higher cost of living and taxes in states like California, but last time I checked New York, New Jersey, and Connecticut also had that problem.
If You Want Successful Kids, Stay Optimistic
Parenting expert Michele Borba recently told CNBC that her number one rule for raising successful kids was to avoid being pessimistic. Since I’m an economist, I guess my son may be in trouble.
I know many of you may point out that with everything going on today it’s a lot harder to walk on the sunny side of the street. In fact, a recent survey by the WSJ and University of Chicago found that 78% of Americans don’t think their kid’s life will be better than their own. Now that’s pessimism.
So, let’s all try to be more optimistic for our children’s sake. I promise to do my part, although I’m not sure how optimistic I can be about the Knicks.