The healing in Miami's housing market began in a thin strip of gold-plated neighborhoods near the beach. And then like a virus"”well, whatever the benevolent form of a virus is"”it spread. In January 2011, according to the real-estate data firm Zillow, home values were increasing in one in five Miami ZIP codes. By December, it was three in five. Over the past year, the Miami-Fort Lauderdale metropolitan area posted a 1.1 percent gain in Zillow's Home Value Index; in 2013, the company projects that area home values will rise by another 5.6 percent.
Miami is on the leading edge of what many economists hope is the long-awaited rebound in U.S. housing. While the nationwide market is slowly finding what appears, finally, to be the bottom of its long post-bubble decline, home prices have already begun climbing in several metro areas. In what could be a stroke of great fortune for President Obama's reelection chances, many of those lie in swing states.
The list of metro-area housing markets that, according to Zillow, are already bouncing back includes Boston, Philadelphia, Pittsburgh, St. Louis, Denver, Phoenix, Dallas, Orlando, Tampa, and Miami. With a couple of exceptions, that's a ready-made itinerary for a presidential campaign swing. Colorado, Florida, and Pennsylvania are toss-up states; Arizona and Missouri lean Republican but could yet prove competitive. Those five states add up to 79 electoral votes. None
Obama has much better odds of winning those votes if the states' economies are picking up; the odds of that occurring rise dramatically with improvement in the housing market. The major headwinds that have held back the recovery, and continue to do so, are high gas prices, Europe's financial mess, and the prolonged housing slump. Of those, economic research suggests that housing is the most important. (It's also the one negative force that Obama can most directly influence; years of middling housing policy by his administration have not done the economy, or the president's reelection hopes, any favors.)
Zillow's experts cite two factors to explain why areas such as Miami and Phoenix are coming back faster than the rest of the nation. The first is that they fell further, faster; the ratio of home prices to personal incomes in those areas has returned to historically normal levels, while other areas still have a way to fall. Second, mass foreclosures in those metros have left huge pools of renters and large stocks of cheap houses, a combination that is proving irresistible to investors.
In this economy, rising home prices are both a sign of improved economic activity and a driver of it. Depressed housing values rob prospective small-business owners of one of their best options for credit"”borrowing against their homes"”and thus hold back new business creation and hiring. Labor Department data show how painfully true this has been in the wake of the Great Recession.
Small businesses historically lead the way in hiring after a recession, but this time they have produced only half the job gains that larger employers have. Rebounding equity could help change that trend. It also could unleash a wave of job-driving consumer spending; housing debt has depressed household spending dramatically, economists Atif Mian and Amir Sufi have found.
Housing prices are still falling, but the rate of decline is slowing.
Signs are certainly positive in several of the areas where Zillow says that housing is already on the mend. Unemployment fell by 2 percentage points over the past 12 months in the Miami, Orlando, and Tampa areas, the Labor Department reports. Joblessness dropped by about 1 point in Phoenix and St. Louis, and by just over half a point in Denver and Pittsburgh. The math behind this presidential election is not multi-variable calculus: The lower those rates fall in big metros in key states, the better Obama's chances look against Republican challenger Mitt Romney.
Of course, not all swing regions are seeing housing upticks. Zillow forecasts another year of falling prices for Virginia Beach, Va.; Detroit; Cleveland; Columbus, Ohio; and Charlotte, N.C."”bad news for the economies of four toss-up states that Obama won in 2008. The housing collapse in Las Vegas appears to be bottoming out, which is good news for one of the nation's most battered markets, but prices don't show signs of rising anytime soon.
The national market has flashed signs of improvement recently. Housing prices are still falling, but the rate of decline is slowing. Oddly, the brakes have been applied to most foreclosure activity even though a huge backlog of distressed homes remains. Homebuilder sentiment is at a five-year high. New housing starts jumped in April, a development that T. Rowe Price economist Jared Franz says "points to continued modest healing in residential construction."
Absent any meaningful congressional action to speed that healing along"”and none appears forthcoming"”the best that can be hoped for is that the good germs of housing health will spread slowly from recovery leaders such as Miami and Phoenix to laggards such as Charlotte and Vegas. As Federal Reserve Board Governor Elizabeth Duke noted in a recent speech, "Home prices have risen in more cities lately than they have fallen."
The return to vitality will take time. Zillow's chief economist, Stan Humphries, cautions in a research note, "The recovery in most areas will be a hyper-local process, where individual ZIP codes will start to recover before the metro area as a whole." Humphries likes to show off time-series maps documenting how rising prices in one ZIP code spill over into nearby neighborhoods and then spread, quickly, across a city. It's a sort of contagion. The happy kind, the kind that Obama desperately needs.