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Monday, June 22, 2015

US Population and Housing...A Tale of Two Americas (S & W vs. N & E)

There are some factors which generally affect housing similarly across the nation...Interest rates, credit availability, credit duration, wages / savings.  The 80%+ decline in the cost of funding loans since '81 has been spread like peanut butter across the nation.  Likewise, much of the bond market has been made "un-investable" due to extremely low yields.  This has sent masses that would have previously flocked to bonds for retirement income to instead focus on rental real estate for income in retirement.


There are others which are quite unique to locations like population gains and building (inventory).  The mixture of the collapsed rates, increased availability, rental growth, and population gains have created some of the greatest bubbles in American history.  Today, I'm focusing on the population and housing creation to offer some perspective why places like San Francisco are going banana's...in fact, please stop reading this and read Wolf's piece first and then come back (see Wolf Richter's piece at http://wolfstreet.com/2015/06/21/housing-bubble-2-san-francisco-vs-america/ for a good sense of how ludicrous this has become).  But I wanted to add perspective to Wolf's excellent piece because there seem go many clueless buyers and sellers out there..so here goes.


Lets start with a quick look at US population growth, by region, since WWII.  The South and West are growing rapidly while the North-East and Mid-West have nearly flat-lined since 1970. 

If I were to break this down further, we would note rural areas are generally flat to down across the board while urban and suburban areas are growing rapidly in the S and W...slightly up to flat in N.E. and M.W.  The demographics of rural areas are rapidly aging while urban/suburban well younger...more so in  S and W...less so in N.E. and M.W.


Just for perspective below, I chose four major states from the four regions to highlight the differences in population growth since 1940 (Michigan actually goes negative in the most recent period).

The chart below highlights the population rises and homes added for those population gains since '00.

And a quick breakdown by '01-->'07 and '08-->'14.  Interesting dynamics between regions populations gains and new housing added. 




The bubbles seen in '07 and again now in '15 are a compilation of bad policies coupled with natural growth factors driving bubbles across the West and South that leave real estate, it's owners, and financiers on a roller coaster with all the fun for those taking the ride to the peak...and all the sickness for those tax payers and savers left to bail out each progressively gut wrenching free-fall.

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