Wednesday, 16 March 2011

A mystery for US house prices ?

Hello there. Just a quick post on the US home prices today. I know it must seem out of place with all the madness following the Japan earthquake but I really don’t want to say anything about it since I don’t feel comfortable with it. All this human pain makes me feel awful, I just hope that one of the most pronounced instances of confirmation for Murphy’s Law will soon halt…

So, out of place really, here comes my post about house prices in various US states.

source: St. Louis Federal Reserve

Although New York and Massachusetts both displayed larger increases in house prices than Missouri, prices there didn’t behaved much worse than those at the latter. While in California where the housing bubble was of gigantic proportions the fall recorded was phenomenal. What factors are at play here and how can this be explained? I will tell you my theory after the next graph.

source: St. Louis Federal Reserve

Here the effect that I want to highlight is less pronounced. The highest risers and also the biggest fallers are Florida and Nevada. While house prices declines in Illinois and Wisconsin have been more subtle (always compared to the other states, since there is nothing subtle about a almost 50% fall).

What do Illinois, New York and Massachusetts (i.e. Boston) have in common? All of them are financial centers. Although indexes’ level in New York and Massachusetts equaled or surpassed that for California their declines have been relatively more contained. 

source: St. Louis Federal Reserve

What does that tell you? It tells me that financial centers, positively affected by the rebound in  capital markets, fare better than other areas where the housing market was one of the sole job providers. At least for now, since the markets have proved how volatile they can be...I think it helps prove the point that I did make in an older post, namely that the propping-up of the financial markets by the FED assists the US economy in becoming more two-tiered. States like Nevada, Florida and California where banking/finance is not such a major income-generator have displayed monumental falls in house prices (although admittedly the run-up was steeper also). Of course this is not something healthy and is a contingent source of discontent for American people...

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