Micro Economics on Housing

All that say “housing is local” are exactly right. The thing is that until the local economy has grown enough in the right kind of jobs for home owners, housing will not recover. During the last downturns of the 1980’s, housing in Denver, CO, Missoula and Butte, MT had fallen apart because of economic downturns but the recoveries were totally different in each city.
Denver, CO was flying high with the oil prices high and drilling activity higher then it had been in decades. Like the past, Denver was the city that financed the oil and gas industry for the northwestern region. Oil Markets crashed and the exploration firms went broke. Many of the S&L firms not only had loaned to the Oil industry but also had speculated on the expansion of housing. The influx of people started to slow and then the large spec houses did not sell as fast as they used to. Finally, large S&L’s like Silverado folded. House prices continued to fall for about three years and it was another 5 or 6 years before the housing market could be considered fully recovered. What made housing recover was a growing economy. Housing will not recover unless there is growing demand for the homes. Pricing is the last item to recover fully because most peaks are in a bubble and normal growth takes years to catch up with the peak.
Missoula, MT is a city that has the Timber Industry and U of M for major industries. The Timber industry expanded until the late 1980’s then started to shrink because of lack of raw materials to process. Some of this was natural and some was ecological. The last closure was the Milltown mills east of Missoula. Now the industry is a small fraction of what it once was. U of M has maintained its economic influence on the area while an influx of retirees and small businesses have helped to keep the economy moving. The attraction of Ravalli County (south of Missoula) to people like Charles Schwab has been a bright spot of bringing in economic activity. Growth has been slow in recent years and housing is based on demand.
Butte, MT is a different story from the other two. Butte is and always was a mining town. The Anaconda Company closed in the early 1980,s because of the demands of the unions. 2,300 workers lost there jobs permanently. The federal government provided one year of wages over two years so these workers could retrain for other local jobs. During these two years, the Butte economy actually grew. After the funding started to run out the workers that still needed a job had to move and the economy started to shrink. The average age of the miner was 56 so a lot of them could retire after the other income stopped. Some 360 families moved for Butte over the next 3 years. Then the shrinkage slowed to about the death rate. Butte was becoming a ghost town with large areas of town having vacant houses. It was 10 years later that Dennis Washington bought the mines and opened them as a non-union operation. Without the union work rules 375 workers produced the same as the 2,300 did under the rules. Not the support to the local economy that it once was but much betters then anything at all. The pay was two fold, 28,000 base on average and 50% of the profits over the first 10%. Most years the bonus was more then the base pay. In recent years Butte has grown because of the largest wafer plant in the US being build west of town. Some of the “student exports” of 20 and 30 years ago have now moved home and opened businesses. Many of these are in the high tech world such as specialized software. With these other businesses Butte will survive.
Denver and Los Vegas have some similarities. The drivers of the two economies are totally different but both are attractive to companies that are trying to move away form high taxation. Los Vegas is attractive to any business in California and even some areas of Arizona. This is less true today in Denver then it once was but compared to California Colorado is an oasis.
Missoula and places such as Bend, OR are similar and will recover slowly. Ecological considerations sometimes overtake economic ones in both these places.
These three examples have other counterparts in the nation. Detroit will probably be like Butte for a long time. The Auto industry will not show recovery until the union work rules are removed. I think all three will continue to have problems.
Just a few thoughts from a 25 year veteran of Micro Economics!