National Economic Outlook - September 2015

Written By:
Ingo Winzer, President

Local Market Monitor

Sub-prime mortgage lending on a massive scale produced a run-up in home prices, then a gigantic crash, then rebound speculation in foreclosed properties. Now, ten years after the start of this cycle, we seem to be near it's end. The latest home price data show just a residual flush in those areas most heavily infected by the sub-prime/foreclosure disease - Arizona, California, Florida, Nevada, and parts of Oregon and Idaho.

We could call it the Phoenix Syndrome because of the extremes in this major market - home prices up 40 percent in 2005, down 22 percent in 2008, up 19 percent in 2013, and now settled at 5 percent. The name aptly symbolizes the cycles of opportunity and destruction that characterize our real estate markets. Like it or not, in a country where people and jobs are always moving - and where government policy intrudes - the value of immovable assets goes up and down.

One aspect of this syndrome - which for real economists is just setting prices at the margin - is that the actual value of a typical home is often unknown. If foreclosed homes in Phoenix are worth 19 percent more, does that mean ALL homes in Phoenix are worth 19 percent more? Many of the difficulties in home lending and home construction are due to our ignorance of fundamental value.

In August - continuing the trend of the last six months - the number of jobs was up 2.1 percent over last year. Jobs were up 1 percent in manufacturing, 2 percent in retail trade, 3.4 percent in business services, 3 percent in healthcare, 3.5 percent at restaurants and 0.6 percent in government. The unemployment rate fell to 5.1 percent.

Note that jobs in transportation - a good indicator of business activity - were up a good 3 percent. On the other hand, the 3 percent increase in construction jobs is fairly modest - just a year ago it was 5 percent.