Monday, March 10, 2014

The big housing crunch

The story of housing costs increasing rapidly in many cities across America is becoming a popular tale. But this was all too predictable. Back in 2011 Brad DeLong observed that the housing boom was followed by an even larger housing bust:

As you can see new housing construction fell an estimated 5 times the size of the construction boom.  Thus we reach the situation where home prices increased an average of  12% nationwide last year.  Combining the low pace of inflation and wage increases, housing costs are putting a squeeze on households.

Consider Chicago, where the price of rentals has increased 17% over the last decade.  An increasing number of renters pay over 30% of their income on rents.  But as they say, all real estate is local.  And while Chicago did very well last year, with home prices showing their biggest advance in 25 years, the south suburbs have done very poorly.  Prices in many south suburbs have declined to 1990s levels.

I think what we are seeing is the hyper localization of real estate.  Neighborhoods with low crime and good access to transportation are increasing in value, while those without those two factors struggle.

Monday, March 3, 2014

The geographical problem reconsidered

Previously I suggested that JC Penny's problems were more than just the death of retail problems that have plagued many brick and mortar stores.  Rather I suggested that not having a location in cities was a problem. Since then Sears announced they are closing their flagship Loop location in downtown Chicago. So perhaps my assessments were wrong. If the downtown location didn't help Sears it probably wouldn't help JC Penny.