This morning I stumbled across a graph here that neatly illustrates something I’ve been commenting on at The Glittering Eye. The graph below (click for a larger image) charts the rise in housing prices between 1986 and 2006, adjusted for inflation for the U. S. as a whole, for California, for Orange County in California, and for Irvine in Orange County.
The lowest, slowly rising line is median home prices for the entire United States.
Now what this graph is missing is volume—we don’t know by looking at it what proportion of U. S. housing price increases California represents nor what proportion houses in Irvine represent in California. However, since California is, from a population standpoint, a very large state, 12% of the entire country, and Orange County is California’s third most populous county it’s got to be a pretty big part of the whole.
Remember, too, that most of the people who are “under water”, i.e. owe more on their homes than they are worth, live in something like 20 counties and something like half of those counties are in California.
My point in all of this is that rather than treating the collapse of the housing bubble as a national problem it might be prudent to treat it as a California problem. However, rather than propping up the obviously ridiculous California housing prices shouldn’t policy be directed towards allowing prices there to reach a more sensible level gracefully?
I don’t have an objection to the federal government being involved in all of this—we are a federation, after all. But California isn’t just an innocent bystander. Policy, especially fiscal policy, there is directly complicit in the bubble and the meltdown.
Have you read any theories on what may have caused CA prices to start rising faster (and becoming more volatile) around 1975?
I think the best guesses are Baby Boomers and Prop. 13.
Great. You had to go with Irvine. The place I’m thinking of moving to next.
The great attraction is good schools. Also, since we’re going to rent not buy, the rental market looks great. (Please rent my house before I go into default! Pleeeese.)
The big stumbling block is state income tax. That’s a tough one to get past.
At 10%+ it’s the highest state income tax in the nation. And it’s one of the few states with a graduated state income tax.
Speaking of default, every time I walk into the bank to draw from our HELC to pay more on our addition a cold chill runs down my spine.
California housing prices also reflect higher regulatory restrictions and limitations on outward expansion due to the ocean.
If the economic trouble is keyed into a group of people in Organge County where the median home sale last year was $700,000, then how can one draft a politically palatable federal policy to help these (relatively) poor people out. It may not be possible.
Dave — it is regional, to some extent, but I don’t think it’s CA-specific, or even Southwest-specific (there are a lot of foreclosures in NV and AZ.) FL seems to be one of the hardest-hit states, and parts of the midwest and northeast are not doing that well either. There’s a useful map here — but note that when it comes up, it is not showing foreclosures. (It has many options.)
Thanks for dropping by, hilzoy. The most recent Case-Shiller index of housing prices indicated that the decline in housing prices slowed substantially in Florida and mostly stopped in the Northeast. Indeed, housing prices actually increased in Boston.
The Southwest—southern California, the Phoenix area, and the area around Las Vegas—was the region where prices were still dropping.
My conjecture is that the collapse of the housing bubble has a double whammy effect there. Not only have housing prices gone down but the loss of jobs in construction, more dependent on immigrant labor in the Southwest than anywhere else in the country, has impelled some of the immigrants to return home, reducing demand.