Scattered signs of life in Western housing markets

Western analysts scanning the economic horizon for signs of a housing rebound in the region, finding little evidence of recovery in 2009, are now setting their sights on 2010. Since last year was so bad, the consensus is that 2010 can only be better. And indeed the recently released January housing permit figures from the U.S. Census Bureau are higher — much higher — for the Western states than a year ago. But one month's worth of preliminary data is not reason for celebration when so much uncertainty hangs over the economy.

Western analysts scanning the economic horizon for signs of a housing rebound in the region, finding little evidence of recovery in 2009, are now setting their sights on 2010. Since last year was so bad, the consensus is that 2010 can only be better. Although that same type of optimism existed 12 months ago, it is clear now that 2009 was far from a recovery year.

In the national accounting ledger, new residential building finally made a positive contribution to real growth in Gross Domestic Product in the second half of 2009, after dragging down GDP in previous years. But home prices declined nationally for the year as a whole in 2009, along with single-family permits.

In the West, housing signals were mixed. Resales of existing single-family properties in several states were up as 2009 drew to a close, but home prices in all but two Western states were down again. And the key indicator of housing market health, single-family permits, fell in 2009 in all Western states (see table).

Those looking for a positive spin on the received data point out that it is likely that 2009 was the bottom of this housing cycle, and 2010 will bring growth, however modest, to the residential markets in the West. The recently released January housing permit figures from the U.S. Census Bureau are higher — much higher — for the Western states than a year ago. But one month's worth of preliminary data is not reason for celebration when so much uncertainty hangs over the economy.

Western home prices tumbled

Home prices fell in 32 states in 2009, according to the repeat sales index of the Federal Housing Finance Agency (properties are limited to those with conforming mortgages). Overall, prices were down 1.2 percent nationwide. However, eight of the 12 Western states had price declines greater than the national average, and seven Western states ranked among the 10 with the largest dip in prices.

Nevada registered the greatest price drop of any state (17.2 percent), and Arizona had the third worst decrease, after Hawaii. Also among the 10 states with the greatest drop in home prices were Utah, Oregon, Idaho, Wyoming and Washington. Texas and Colorado registered price increases as measured by the FHFA index.

Resales mixed but some States show momentum

The resale market has been aided by falling home prices, foreclosures and bank sales, and government programs such as the first time homebuyer credit. Some observers have noted that investors are also back in the market in Nevada and Arizona, two states with large gains in resale activity in 2009.

Foreclosures account for a significant proportion of sales in both these states, and therefore the strength of resale activity should not be misinterpreted as indicating a return to normal conditions. Nationally, resales increased by 4.9 percent in 2009, after decreasing by 13 percent in 2008. In addition to Nevada and Arizona, states in the West with stronger than average annual gains included California, Idaho, and Montana.

Resales in Colorado were down by 10 percent in 2009, but were up in the fourth quarter by 10.3 percent over the fourth quarter of 2008. Clues to the momentum of resales can be seen in the increase of Q4 2009 over Q3, seasonally adjusted at annual rates.

These figures, as reported by the National Association of Realtors, show gains of less than 2 percent for Arizona and California, suggesting these markets may be cooling. Meanwhile, momentum is building in Idaho (up 86.4 percent), Oregon (up 30.5 percent), and Utah (up 20.8 percent), and continues in Nevada (up 22.4 percent).

Did permits bottom in 2009?

Single-family permits decreased nationally and in every Western state in 2009. Permits declined by more than the national average in Arizona, Colorado, Nevada, Washington, and Wyoming. The smallest decrease was in Utah. The Blue Chip panel predicts that single-family permits will increase in the West in 2010. The largest increase is projected for California (43.3 percent), while Nevada's consensus barely exceeds 1 percent growth.

January single-family permits were recently released by the U.S. Census Bureau and the percentage increases over-the-year in January give an early indication that 2010 may bring the long-awaited recovery in home building. Permits were up by more than 40 percent for the nation, and increased in the double digits in every Western state except New Mexico (-5.4 percent).

Idaho permits were nearly double the January 2008 level, and permits were up by more than 50 percent compared to a year ago in Arizona, California, Nevada, Utah, and Washington. The vagaries of government programs, weather, and year-to-year comparisons of relatively small numbers should be noted in interpreting these gains, but as of right now, the early results give some reason for optimism about Western home building as the year unfolds.