Forecasts for Canadian Housing Markets 2020 The 2019 housing market…
Housing Bubbles in US Cities
The US economic outlook couldn’t be brighter and the housing market did alright in 2019. US homeowners gained $1 Trillion in home equity in the last year alone. That’s $16,000 or 13.3% more per mortgage holder.
Turns out, real estate has been an excellent investment choice and there are always skeptics wondering if bubbles will be burst. Optimism abounds, with a booming economy, job growth, and low interest rates, existing home owner equity should rise more through 2020.
Yet there are dark threats lurking in many US cities. If the US housing market did slide, you’re wondering if your city or states would be hit hard, and which cities survive with only small declines. While California might seem at risk, it’s actually other cities without recession proof economies that might concern buyers.
An Economy in Deep Flux
Current national economic trends and conflicts (China and Free Trade) have left some local economies weak. They are on the mend due to the Trump tariffs. However, there are many mechanisms the Democrats and the US Senate could use to paralyze the President. That could bring gridlock and unwittingly cause the whole house of cards to collapse instead.
Big economic weakness + high prices + high inventory + big indebtedness equals highest likelihood to crash
Which Cities Will Have a Housing Crash First?
Which cities will collapse depends on mortgage holder status (underwater mortgage rates), homeowner debt to income ratios, employment levels, local population migration, price trends, new construction, and current delinquency rates. We might throw in the market health rating as provided by Zillow.
Housing Crash History and Timelines Might Not Help
Housing crash history might not help us much. After the last recession, some cities crashed hard, and despite the national recovery of the last 10 years, their home prices haven’t recovered. Some have problems with underwater mortgages, negative equity, and defaults as you can read below.
Now with US trade altered, the distribution of wealth among America’s cities has been changing. However, we have to consider which cities can actually benefit from the return of industry to the US.
Will cities such as Newark, Cleveland, Detroit, Chicago, Kansas, Baltimore, Pittsburgh, Philadelphia, Las Vegas, Jacksonville, and others be apart of the great American revival? Or are they doomed no matter what happens?
Which Cities Will Have their Bubble Burst?
Which states and cities will benefit or stagnate depends on additional factors including old debt, demographics, construction readiness, business investment, technology, geo-location, and state taxation levels.
Local economic health, current underwater mortgages and mortgage default data might help identify those markets which can’t tolerate economic downturns.
No one is sure which way the national housing market will go, and it’s even more uncertain at the local level. However, it looks as though the new economic and trade situation in the US is the driving factor behind which city housing markets will crash and which may just have a downturn. Old cities will need an extra lift from investment.
With China gone, which cities in the US will take over manufacturing glory and become insanely prosperous? And which will miss the boat again for another business cycle?
Here’s the City Level Crash Factors
- end of Free Trade dissolves markets for products manufactured/exported from specific US cities
- import tariffs mean companies in some cities will find American consumers/businesses suddenly buying their products (e.g., solar panels, computer chips, power tools, drill bits, mufflers, electric cars, steel products, agricultural products)
- we’re edging toward the tail end of the longest business cycle ever, which means demand for certain products may diminish beyond 2020
- specific cities have better younger and better educated demographics (age, experience, skill) supporting manufacturing and service businesses
- some cities are in bubble territory with mortgage holders who would bale out quick
The point to be made is that some cities really are more at risk. The cities of San Francisco and San Jose are cited by most likely to crash due to their Asian/International trade positioning, high housing prices, and how tech startups might vanish. However, in a fast rising Trump economy, Silicon Valley still has a huge US market to serve. And why would world markets end?
Old cities in New Mexico, Wisconsin, Idaho, Kentucky, Illinois, and Michigan are weak and vulnerable to the next recession.
A Powerful Economy Till 2020
Economic experts are predicting the obvious — a great economy till 2020. That’s not far away. Demand for housing is very strong, low mortgage rates continue, and American consumers are becoming wealthier.
So it’s a long shot to call a recession or general housing crash happening. Yet, some experts actually believe we’re at the end of a record business cycle (for corporations) and they predict that a crash is absolutely coming. We’ll see.
Big Bubbles Forming in Other World Cities
We’d be wise to keep an eye on bubbles in China and Australia’s major cities, and even up in Canada in Vancouver and Toronto. These markets are far more likely to crash. In China, Shanghai and Hong Kong are cities that could collapse if China’s easy exports suddenly ended with Europe and North America. Which US cities benefit most from the Asian markets (San Diego, San Francisco, Seattle) and would perhaps suffer from a China crash?
With or without Free Trade, Canada is in a terrible situation with artificially overpriced real estate damaged by repressive investment and new construction rules. The Toronto housing bubble is well documented and forecasted and a Vancouver housing crash has been expected for sometime now. Without investment and export markets, Canada is perhaps more vulnerable than now teetering China.
If Trump Loses, Will Investment Flood Out of the US?
The repatriation of jobs to the US hasn’t actually begun but will pick up steam now due to the new import tariffs. President Trump has just announced another round on $200 billion of imports.
Manufacturers haven’t been forced to bring operations back to the US until now. And the import tariffs will generate massive tax money for the US government. American companies and their products/services will be in high demand inside the US and will grow in popularity just as Chinese products did for the last 20 years.
Will the Great American Revival Need Oxygen?
We’re only 2 years into the great American revival with Free Trade now in the rear view mirror. Any attempt to return to the old high debt/high deficit trade situation, would be disastrous. Capital flight is a big risk for cities with big debt and overpriced housing.
Infrastructure money for many older cities such as Chicago, New York, Boston, Washington, Philadelphia, Indianapolis, Atlanta, Newark, Baltimore, Philadelphia, Boston, Cleveland, Detroit, etc would be terminated.
Would the Democrats try to turn back the clock if they returned to power? Or would they simply claim Trump’s successes as their own and carry on with what he was doing? The phrase political expedience might give the correct answer. Yet, it’s the political mess that’s the real danger.
As laid out in the housing crash post, there’s a number of general and specific reasons why housing markets crash.
Miami, Chicago, New York, Las Vegas, Denver, Indianapolis, Minneapolis, and Seattle all have different dynamics and export markets. Given each city’s unique economy, housing affordability, pricing relative to average income, mortgage indebtedness, and home equity, it’s tough to forecast right now. But the picture will clarify by 2020.
City Most Likely to Have a Housing Crash? — Chicago, Illinois
Chicago seems to have been going the wrong way economically for some time. As with many rustbelt cities, there’s not much to protect Chicago regardless of which way the national economy goes. They seem to be the poster child for a double calamity.
High taxes and poor job growth made Chicago the last major market to recover from the previous recession. Prices have only risen 2.7% (national average 6.3%). Illinois has lost more residents than any other state.
During the 2008 to 2018 trade imbalance era, Chicago’s jobs were created mostly downtown and most of Chicago’s population growth has been from Mexicans. All in all, the metro area seems unattractive for high tech business.
If this is the most likely or only housing crash scenario, Miami, Detroit, Philadelphia, Cleveland, Minneapolis, Baltimore, Las Vegas, Denver, Atlanta and Orlando would likely see big declines too. Chicago has more underwater mortgages than any other city — 250,000 homes have mortgages higher than the homes are worth. That’s a whopping 16.6% of homeowners in metro Chicago. And 20% of them owe twice as much as their homes are worth!
City Housing Markets Most at risk of Collapse
2nd City Most Likely to Crash: Newark NJ. Newark’s delinquency rate for homes underwater is a whopping 20.4%. Back in 2009, they were severe too. So Newark never really recovered and that legacy cripples its economy and housing market. Zillow rates Newark as a healthy market based on recent price trends. 10% of mortgages are delinquent.
3rd City Most Likely to Crash: Hartford CT. Zillow gives the Hartford Housing Market a 1.5 out of 10 for health. 6.3% of homes have mortgage delinquency and 43.2% have negative equity. Home prices have stagnated the last 2 years.
4th City Most LIkely to Crash: Jacksonville FL. Zillow reports Jacksonville with a 3.4/10 health rating, however home prices are rising fast and only 2.7% of mortgage are delinquent.
You can see a list of the top 54 cities at risk of a housing collapse at the GoBankingRates website.