Recent headlines have used panicked terms — “plunge” and “record lows” — to describe price trends. Yet current declines have been quite moderate — and understandable, given last year’s rally driven by the homebuyer tax credit program. That program’s effect could never be sustained because of the record low levels of equity Americans hold in their homes today. Without a substantial pool of equity, there isn’t the demand necessary to get the market moving again.
Recent declines are simply the market sagging back to its previous floor.
In fact, home price declines have slowed substantially. Short of some government plan to wipe away a substantial portion of existing mortgage debt, nothing can reverse this but time.
There is a silver lining to this grim real estate reality, however. While Sacramento politicians continue to worry about the effect of taxes and regulations on the business climate, the biggest barriers to our state’s future success may be our incredibly high housing costs.
Many pundits deride California for losing ground to business-friendly Texas, yet most of the comparisons between the two states are empty — both states grew considerably faster than the nation in the 15 years prior to the recession, despite substantial differences in taxes and regulations.
Here is a California/Texas statistic that often turns heads: Despite the fact Texas has a smaller government (as measured by spending) than California, there are relatively more public employees in Texas. The reason: The average public employee in Texas is paid one-third less than his or her California counterparts.
But in one way Texas clearly beats us. That’s in housing. The most expensive housing market in Texas is Austin, which boasts a median home price of below $200,000, less than one-third of the median home price in San Jose and almost equal to the hard-hit Riverside County housing market.
It’s no wonder then that Texas can have more public employees but still spend considerably less on worker pay and benefits. When housing is so much cheaper, workers simply don’t need to be paid as much to provide an equivalent standard of living. The same idea carries over to the private sector.
High housing costs burden those who want a bigger home and those who don’t own a home. This is especially true in California where affordability, despite the record drop in home prices, is still the second worst in the United States. This implies that businesses need to pay workers more so they can afford housing — and it takes spending away from other parts of the consumer economy.
It’s time to reassess our thinking about what is good for California. The next time state officials fly to Texas to find out how Texans create jobs, they should spend less time with the governor talking about taxes, and more time with Texas builders finding out how to make housing so affordable.