Regional Recessions

Quite a few people are crowing about the most recent Case-Shiller index of housing prices. Areas that had taken quite a hit in housing prices when the housing bubble burst like San Diego, Las Vegas, Phoenix, and Tampa have all shown strong 9% year-on-year increases. That’s good. Certainly better than if they had gone down.

What’s not being said is that on average people in those markets who bought their homes after the middle of 2003, a full ten years ago, will take a loss if they sell now. People like making profits but they really dislike taking losses. Most people will go to irrationally great lengths to avoid taking losses. That’s understandable. One of the hardest things to learn when buying and selling things is when it’s time to take a loss. Is it any wonder the supply of homes for sale is so scanty?

In Chicago the situation is somewhat worse. On average people in Chicago who purchased homes since the beginning of 2001, more than a decade ago, will take a loss if they sold now. Since the typical American family changes homes about every 12 years, that’s certainly the greater number of home owners and probably includes most peoeple.

Consider the Chicago Purchasing Manager’s Index, illustrated above. I think it’s pretty clear that the region is drifting towards recession. Spirits may be pretty buoyant in New York and Washington, DC. They should be with the amount of money the Federal Reserve and the federal government have lavished on those areas over the last half dozen years. Just as there is an oil-driven boom going on in the upper Midwest there may be regional recessions going on all over the country, largely unfelt and unreported in the national news outlets, concentrated as those are so heavily in New York, Washington, and Los Angeles.