This Crash Was Different
This is my second housing market crash since I’ve been in NH and old enough to know anything about them. The first was the great crash of the late 1980s and early 1990s that took with it the five largest banks in NH and many of the largest banks in New England. But that crash was fundamentally different and was largely the result of tremendous overbuilding of housing in the state and the region during the mid and late 1980s (see graph below). Even the recent crash was, in large part, the result of over-building in many of the hardest hit states like Nevada, Florida, and Arizona. Where overbuilding occurs, downturns are a more dramatic combination of excess supply and and a retreat from irrational expectations of price appreciation. Again, because NH didn’t overbuild this time, our price declines weren’t as dramatic as many areas of the country and our rebound likely won’t be as dramatic either. If values have fallen 50 percent as they did in some states, you can get pretty large jumps in appreciation quickly as things stabilize – even though a 10% price appreciation still means values are down 40%.
In NH we don’t have years of excess housing supply to work off before prices can begin to recover. This time around recovery in prices and new construction will be about the fundamentals that drive the demand for housing, population and job growth, new household formations, and the need to replace old units – I’ve noted that before (and here). I wish people would look to job growth in NH instead of what is happening to home prices in other states if they want a clue as to where NH prices are going. One of the great unknowns is whether the recent troubles in the housing markets nationally and in NH have fundamentally altered perceptions of the value and desirability of homeownership. I don’t have an answer to that but one indicator could be the percentage of new construction that is for single units versus the percentage for multi-unit structures. The chart below does suggest that the percentage of building permits for single units in NH did trend lower as the market began to decline, and is likely an indicator of developer’s responding to a lower level of demand for single family housing compared to multi-unit. Whether this is just temporary or a longer-term adjustment in the attractiveness of single family housing remains to be seen.