If you’ve been watching the real estate reports for the last few weeks you know that a number of very bright spots have begun to emerge, local housing markets which are just booming.
The housing resurgence is great for those who bought in the right places and suggests perhaps that the last dregs of the foreclosure meltdown are finally over.
At the same time it’s hard to look at recent reports and not conclude that America has become a divided country, a nation where some metro areas are doing remarkably well while others languish. Curiously, it’s smaller areas which may generate increasing interest from investors and buyers, in part because of the growth potential they represent as Americans reconsider their goals and lifestyles.
“New home price peaks were reached in the last two years in 28 counties, representing 10 percent of the total 274 counties analyzed,” said RealtyTrac vice president Daren Blomquist.
Seen the other way, 246 counties have not reached new highs. The majority of places where people live remain in a real estate rut five years after the recession officially ended.
No less important, there’s evidence that the areas which lag behind are actually falling further back.
Fewer than half of the housing markets Freddie Mac covers in its Multi-Indicator Market Index are now showing an improving trend. In comparison, “at this same time last year more than 90 percent of these same markets were headed in the right direction.”
“House price gains are a double-edged sword at this stage of the recovery,” said Freddie Mac chief economist Frank Nothaft. “They help those hard-hit markets where prices are still low and many homeowners are underwater, but in areas where supply is constrained, they’re creating an imbalance and pricing out many first-time homebuyers.”
Housing Costs and Closing Opportunities
The lack of first-time buyers is a problem but there are two related issues as well: First, if you do not now live in one of the financially advancing metro areas the odds are pretty good that you never will. Second, we’re likely to see a lot of out-migration to metro areas where markets are less costly and communities are less crowded.
Consider the booming techno-cities of San Francisco and Austin.
The Smiths live in the San Francisco area and have owned a house for the past ten years. Last year the typical area home sold for $685,500, but values have risen12 percent year-over-year, and now the average property goes for $768,000 — an increase of $82,500, according to California Association of Realtors.
The Greens live in the well-regarded city of Austin. They have a home which is physically much like the Smith property in terms of bedrooms and baths, but there’s a big difference in price: The median Austin home is worth $239,900 — that's up 6 percent from $226,320 from a year ago, an increase of $13,580, reports the Austin Board of Realtors.
Ask yourself a question: Can the Smiths afford a move to Austin? Can the Greens afford a move to the Bay Area?
You can see that it’s pretty much a one-way deal: The Smiths' housing costs will likely shrink by two-thirds if they move to the Texas capital — indeed, as ten-year homeowners in San Francisco they may well be able to buy an Austin replacement home for cash. The Greens — while doing great in Austin — will face a three-fold increase in real estate expenses if they move anywhere near Fisherman’s Wharf.
That’s not the whole story though. While money — and the effort to get more of it — is the bright, shiny brass ring that drives much of what we do you have to wonder whether getting more stuff is the central goal of a life well lived or if there is something else.
"You can only eat so much," multi-billionaire Perry Bass told The New York Times. “You can only wear so many clothes. I've got some nice paintings. Now I'm not buying any more. I don't have a place to hang them."
The New Immigrants
The growing distance between America’s pockets of prosperity and the more-numerous areas where the pace is less frenetic suggests that a new and different form of immigration will emerge, a mass movement away from the nation’s largest urban cores and their nearby suburbs.
In the 50 years between 1880 and 1930 more than 27 million people entered the U.S. from Europe, individuals for the most part fleeing wars, starvation and intolerance plus an assortment of tsars, emperors and dukes and the oppression they represented, according to the Ellis Island Foundation.
The Dust Bowl of the 1930s caused great numbers of people to leave their homes in Oklahoma, Kansas and Texas. In a vast domestic migration they largely headed west to California looking for jobs and opportunity. California was, as Woody Guthrie sang in “Do Re Mi” — “a garden of Eden, a paradise to live in or see.”
But times have changed. It was Mahatma Gandhi who said “there’s more to life than increasing its speed” and it's a notion which appears increasingly popular because in the current American model, writes James Surowiecki with the New Yorker, “you work more hours and use the money you make to pay for the things you can’t do because you’re working, and this creates a demand for service jobs that wouldn’t otherwise exist.”
In both the mass immigration from Europe and the domestic shift during the Dust Bowl era people moved to where the money was, where there was more opportunity. The next immigration trend may well be outward, not to other countries but away from massive, high-cost, dense metro areas to quieter places with less traffic, fewer speed bumps, lower home prices and cheaper food; places where life is good and the pace is less hectic. Think of Austin and also New Orleans, Ann Arbor, Pensacola, Charlottesville, Madison, Boulder, Chattanooga, Asheville, Tucson, Savannah, Pittsburgh, Santa Fe, Raleigh and similar metro areas, places with universities, economic vibrancy and often a port or international airport nearby.
According to Forbes, the five best places for job growth now include Austin, McAllen, Houston, Fort Worth-Arlington and Ocala. Perhaps coincidentally not one is located in a jurisdiction with a state income tax.
What makes the new American migration possible are new technologies that allow millions of people to earn a solid living at the work location of their choice. According to GlobalWorkPlaceAnalytics.com at least 3.3 million people consider home their primary workplace, not including the self-employed.
“For the period from 2005 to 2012,” says the site, “the telecommuter population grew by 79.7 percent, while the non-self-employed workforce grew by only 7.1 percent."
For many work is no longer five days a week, eight hours a day at a given skyscraper, factory or suburban office park; instead the workday more flexible because clients and employers may well be active in different time zones. Indeed, there’s an argument to be made that "more flexible" also means less privacy and more time on the job, that the work week is no longer 40 hours or anything close.
It used to be that telework was widely opposed in the corporate world but today that seems less so. The “self-employed” are often workers who draw good salaries but not benefits, a big cost-savings for corporations. Companies need less office space when much of the workforce works remotely and communities have less demand to widen roads. Alternatively, many remote workers get benefits because that's what companies and government offices must do to attract qualified individuals, a win-win for everyone.
In many cases the trend toward smaller places means moving huge enterprises away from major metro areas and big coastal ports. Drive from Washington to New Orleans and you will be stunned by the vast areas with farms and forests — and also the huge factories and warehouses which magically crop up along the way, seemingly out of nowhere.
Long ago it was the editor of the New York Tribune, Horace Greeley, who advised new workers — or at least male new workers — to “go West, young man.” Today the more current advice might be to get an education and go where you want to live, whether by the beach or in the mountains, whether in a big city or a smaller community.
For buyers and investors it means that real estate opportunities are no longer clustered in massive metro areas, places where the rush hour starts at 6 AM and ends at 8 PM. Instead, there's a lot going on in selected smaller towns, the places where life is less hectic and telecommuting means your potential tenants and buyers can get paid from employers and clients far, far away.
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