National Economic Outlook - December 2015

Written By:
Ingo Winzer, President

Local Market Monitor

The link between income and home prices is so strong that it only breaks down in special circumstances. The pre-recession boom was one, the recession bust was another, and the local boomlets in foreclosed properties were a third. Now that that dust has settled, we can foresee different futures for some groups of markets, according to the balance between income and home prices.

Some markets are still recovering; prices have risen rapidly but are still below the income level. This group includes many markets in Florida and California. Once prices are back in balance with income - in the next couple of years - expect more-modest increases.

In some markets, prices are in balance with income and are surging because of good economic growth. This group includes markets in Colorado, Texas and the Northwest, but also some in California (Bay Area) and Florida (Miami area). These markets are growing faster than builders can keep up, so expect home prices to rise for years - possibly into another boom.

Some markets, unfortunately, are stagnating; home prices are well below where income says they should be, but are not recovering, because economic growth is poor. This group includes many smaller markets throughout the country that depend on a few large employers, but also Hartford, Camden, Tucson. If local economies are not doing better at this stage of the economic recovery, expect flat home prices for years.

As in previous months, there were 1.9 percent more jobs in the US in November than a year ago. The surge of growth in manufacturing earlier in the year has abated, jobs were up just 0.3 percent. Retail jobs were up 1.8 percent, business services jobs up 3.2 percent, healthcare jobs up 3.2 percent, and restaurant jobs up 3.5 percent. Government jobs were up slightly, 0.4 percent, mainly at the state level. Unemployment remained at 5 percent.