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Market Trends Across the U.S. – How Economic Restructuring Affects Housing Affordability

In this month’s Home Value Forecast, we examine how knowledge-based populations in affordable housing markets are driving economic growth and housing values.

To help us examine this issue, we refer to a fascinating report published late last month from the Center for Population Dynamics at Cleveland State University, authored by Richey Piiparinen, Charlie Post, and Jim Russell. The complete document “Ranking America’s Top Young Adult Labor Forces: A Rust Belt Rising?” can be read and downloaded here.

In the report, the authors speculate that the percentage of 25- to 34-year olds in in a metro’s labor force (not students) with a graduate or professional degree is a leading indicator of economic growth. Below is a list of the 40 largest US metros sorted by this ranking.















The top few spots are filled with some of the most expensive real estate markets in the country, with Washington D.C., Boston, San Jose, New York and San Francisco all being in the top six.

The authors then went to highlight Boston, Pittsburgh and Cleveland as three metros that are at differing points in their economic restructuring from a labor-based to a knowledge-based economy.  Boston’s transformation occurred in the 1980s, Pittsburgh’s is well under way now and Cleveland’s is in its infancy – but how does this translate to housing prices?

The below chart graphs average sold price per square foot of living area. Many indices use sales price, which can introduce bias based on the type of housing stock that is selling. For example, the recent housing crisis and drop in values was over exaggerated by these types of indices due to the higher than normal concentration of lower priced, smaller home sales. Our methodology of using price per square foot normalizes for a change in the mix of high versus low-cost home sales from one period to another.

By price per square foot:















The most apparent differences when looking at the three:

  • Boston is far ahead of the other two in terms of housing price – well above $300 a square foot and surpassing pre-crash highs.
  • Pittsburgh felt little housing price impact from the crash do to its growth in technology jobs during this time, as prices steadily increased and continue to do so as the economy benefits from their ongoing technology boom. Houston had a similar “non-reaction” to the housing crash, as an increase in energy-sector jobs blunted the full effect of the down-turn.
  • Cleveland has taken it hard, still 29% below pre-crisis highs. While the post-crash dip was not as dramatic as Florida and the sand states, it shows how much more fragile the economy was compared to Boston and Pittsburgh. However, we are seeing home prices on the rise as their relatively new knowledge based economy takes hold.

Fortunately there is a new dynamic at work – technology has made it easier for corporations to work from multiple locations. Companies like Google have seen the future and instead of moving people to more expensive California addresses, they have built presence in multiple locations, including a Pittsburgh office with more than 400 employees. Separately, Cleveland is becoming a hub for life sciences, thus the same trend is starting there.

So what’s the benefit for the company and for the employee? In one word: Affordability.

Affordability is derived by looking at the median income for a particular area as a ratio to the mortgage payment needed to purchase a median priced home. An index score above 100 signifies that a household earning the median income has more than enough income to afford the mortgage. Lower scores suggest more income is needed to cover mortgage expenses. The Collateral Analytics Affordability Index used by Home Value Forecast also looks at loan-to-value norms for a particular area to adjust for more affluent buyers usually putting more money down.

Below is a graphing of the affordability index for Boston, Pittsburgh and Cleveland.

Affordability-Index-Pittsburgh, Boston, Cleveland














Both Cleveland and Pittsburgh are deemed affordable by this index, with scores of 280+, while Boston is at 120.  With today’s youth looking for work/life balance while struggling to pay off student debt and other obligations, it’s easy to see why Pittsburgh, Cleveland and other Rust Belt cities could see a renaissance in the years to come.

And looking at San Francisco, home of Google, with an affordability index in the 50s, it’s even easier to understand…















CBSA Winners and Losers

Each month, Home Value Forecast uses a number of leading real estate market-based indicators to rank the single-family home markets in the top 200 CBSAs to highlight the strongest and weakest metros.

The ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for that series. For example, a declining trend in active listings would be positive, as will be an increasing trend in average price. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. From the universe of the top 200 CBSAs, we highlight each month the CBSAs which have the highest and lowest composite scores.

The tables below show the individual market indicators that are being used to rank the CBSAs along with the most recent values and the percent changes. We have color coded each of the indicators to help visualize whether it is moving in a positive (green) or negative (red) direction.

Top 10:















Although there are four California metro areas still in our top ten for August, they are joined by metro areas in the Northwest and Southwest with very low months of remaining housing inventory – all are below 4 months with other positive indicators as well. All of the top metros have homes sold in less than 70 days on the market and there are fewer foreclosure sales.

Bottom 10:















Unlike the top ten, the bottom ten metros have 6 to 21 months of remaining housing inventory and with a much higher percentage of foreclosure sales and much higher days on the market before sales. Several of these metros also are in the Rust Belt.