Housing: Here, There & Everywhere

Housing issues of all sorts are a hot topic nationally, not just in Grand Forks or North Dakota. I thought we could look at price levels for three different geographic regions. The first is the Grand Forks metro area since that is one of the topics most frequently mentioned in my appearances on the Jarrod Thomas Show (1310 KNOX radio in Grand Forks). The next area is North Dakota and the last is the United States as a whole.

All transactions price index, percent change from year ago levels

All transactions price index, percent change from year ago levels

We can see that price increases are a common feature of all three housing markets over the last several years with North Dakota outpacing even Grand Forks. What would we expect to see happen in response to such a situation? How about increased numbers of starts?

North Dakota housing starts

North Dakota housing starts

This is exactly what we see happening in the North Dakota data. The starts data are up, consistent with the high price increases in the data. So let’s anticipate a question: why aren’t we seeing more starts in Grand Forks.

Let’s think about that in context. Notice that the percentage price increases are greater for North Dakota overall than Grand Forks. It seems likely that the price increases indicate better returns elsewhere, and so builders commit labor and other resources there. Recall in other posts I discussed the fact that Grand Forks labor force is declining. The labor force is the employed and those unemployed but looking for work. Does a community with a declining labor force sound like a great prospect for building new homes? Consider too that prices are so high for all types of housing in western North Dakota due to incredible shortages.

To make a long story short (I know, I know, too late), when you look at an individual community you need to take into account the broader economic context. The labor shortage in North Dakota cannot help the home building situation in Grand Forks, and the profits are likely higher to building in other areas within the state. Considered from an even broader perspective though, home price growth is occurring across the country now with many communities surpassing average price levels reached prior to the Great Recession. It takes labor, materials, financial capital and many other inputs to build a house. In North Dakota there are many alternative uses for these resources right now that may attract better returns. That competition might get more fierce in the national housing market continues to recover.

Do not expect resolution to these and other housing issues soon, unless significant events, external to the market, occur.

 

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