Swing Set

The U.S. housing market is finally showing signs of recovery. And perhaps to President Obama’s benefit, prices are rising in some key states.

Jim Tankersley
May 17, 2012, 1 p.m.

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.

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.