By John Stapleford
Stapleford is president President, ECON First. He can be reached at firstname.lastname@example.org ECON First provides web-based marketing strategies based upon economic analysis and web presence research
While still 25% below its pre-recession peak, Delaware’s housing market has been recovering, but the top tier is struggling.
As shown in the chart below, the average monthly residential building permits authorized in Delaware hit a low in the middle of 2011 and have been rising since. The most recent twelve-month average almost hit 540 units, up from a low of 240 units.
At the same time, the average value of the single family permits authorized has been almost flat…fluctuating in a narrow range between $128,000 and $132,000.
This seems strange: Building permits are picking up but the value of single family permits is not increasing.
The most recent data from Zillow is mixed as well. The average value of single family homes in Delaware is similar to the nation, as is the percent of homes with negative equity.
At the same time, the year over year rise in Delaware house prices in Delaware is just 1.6% compared to a national average of 6.0%, fewer houses in Delaware are selling for a gain (75% vs. 86% throughout the U.S.), and Delaware has the highest foreclosure rate (per 10,000 houses) in the nation.
WHY IS IT HAPPENING?
Not surprisingly, the answers to why Delaware has a two-tiered housing market are both demographic and economic.
Aside from the seniors, the fastest growing age cohorts in Delaware have been persons ages 25 to 29, followed closely by ages 30 to 34. These are the prime ages for younger persons to make the move from renting (or living at home) to owning. This boosts demand in the lower half of the housing market.
While mortgage rates have remained low over the past seven years and Delaware employment went through a surge, the DuPont-Dow merger along with cuts at Astra-Zeneca eliminated over 3,500 high paying professional jobs over the last year or so.
The graph below clearly demonstrates the dramatic impact that the loss of these professional jobs had on Delaware’s foreclosure rate. This impact was confined mostly to the high end of the housing market and in upper areas of New Castle County.
THE IMPLICATIONS FOR BUSINESS?
Three things are clear.
First, closing the sale of a high end house in Delaware will remain difficult for years to come. Jobs in Delaware are barely increasing and most of the gains are in lower paying industries and occupations. Many of the higher income households in northern New Castle County are relocating out of state.
Businesses that sell luxury goods to higher income Delaware households will struggle.
Second, the surge of bodies in the “first house” age cohorts will diminish, and these households will not be looking for a more expensive “move up” house for at least a decade.
Third, economic growth in Delaware is hitting a wall. Year over year employment growth is below 0.5% and the Delaware Department of Labor projects employment growth of just 0.8% through 2024. The labor force is expanding at twice the rate as jobs, so the Delaware unemployment rate is rising.
The residential real estate market will survive by focusing on the stronger niches in the lower two-thirds of the house price spectrum and on communities that are more in demand (e.g., coastal Sussex County).