Wednesday, May 14, 2008

Top Recession Proof Cities: Thoughts On The Recent Forbes Article

Oklahoma City BuildingsForbes recently published an article titled "America’s Recession Proof Cities." I read the article and thought that for the most part, the cities they chose were good ones, although there were a couple I have my doubts about.

For those who are too lazy or busy to read the article, I’ll summarize it here for you. The top 10 cities in order are: Oklahoma City, Oklahoma; San Antonio, Texas, Austin, Texas; Houston, Texas; Charlotte, North Carolina; Dallas, Texas; San Jose, California; Raleigh, North Carolina; Salt Lake City, Utah; and Seattle, Washington. Forbes ranked the cities based on factors such as how housing values have held up during the past year, unemployment and the overall job and economic outlook of the cities.

The point of this article was to highlight those cities which have real estate markets that are less likely to fall prey to the housing trouble being experienced elsewhere in the U.S. If you look at the list I’m sure you will see a pattern, minus Seattle and San Jose, and that is that housing values are relatively affordable. It is no surprise to me, and shouldn’t be to you either, that the more stable markets are those that have real estate prices that are within reach for the average home buyer. The more people in an area that can afford to buy a home, the more chance there is that people may actually buy one. Most sane people don’t try to buy a house that is 9 or 10 times their income. In most of the featured markets, the home price range falls between 2 and 4 times the income level, which is much more reasonable and realistic ratio.

In addition, these markets haven’t experienced much of the widespread speculation seen in places such as Las Vegas or the Southern Florida and California markets. Investors who bought into these markets did so because they understood cash flow principals, and since they are seeing cash flow from their investments, there is little need to sell off their properties in desperation sales.

Lastly, I want to touch on the outcasts of the group, Seattle and San Jose. These markets aren’t exactly affordable, but so far have avoided the worst of the housing crisis. Living in the Seattle market, I can say that while things aren’t nearly as bad as elsewhere in the country, they aren’t all roses here either. The housing market is slow and basically prices haven’t fallen much--if at all--because sellers aren’t choosing to drop them, so houses are just sitting on the market. The main reason this happened in Seattle is that it didn’t have the widespread speculation, or subprime loans like much of the rest of the country, so sellers here had this luxury. That being said, recently prices have begun to drop and probably will continue to do so for a while longer until an equilibrium is reached. San Jose seems to be in a similar boat, but they seem to have further to fall than Seattle. Their housing prices are even more out of balance, and even though their job market is good, I certainly wouldn’t say they are “recession proof,” or that they are going to avoid a downturn altogether. The median housing prices in San Jose are 7.1 times the median salary, compared to 6.5 times in Seattle, according to data from CNNMoney.

1 comment:

Johnny Morrow said...

This post is spot on. That is why the list is flooded with Texas cities. Plenty of space and affordable housing.