A lot of homes are changing hands for very little money these days.

I looked at four cities, each a well-known entity in the housing crisis, to see how many home purchase loans were made on houses for less than $25,000.  The four cities were Detroit, Cleveland, Las Vegas, and New Orleans.  The first two have had waves of foreclosures due to the gradual decline of industrial employment.  Subprime lending flourished here.  Las Vegas, by contrast, is driven by tourism and retirement.  Unlike Detroit and Cleveland, it was the site of scores of new housing development in the last few years.  It is also the locus of many foreclosures, though.  New Orleans’ decline is a bit different. Its economy has been destabilized by natural causes – Hurricanes Rita and Katrina.

In all, more than 700 homes were purchased for less than $25,000 in these four cities in 2008.  Detroit is the leader, with 256 homes, followed closely by 256 homes in Cleveland.

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Guess what country has the nation’s best economy?  Did you guess North Dakota?  Well, then you might be right.  Sure, it is hard to exactly define best, or to pick a measure that captures the entirety of “good.”

Still, North Dakota excels.  It has a budget surplus.  Imagine that! It has an unemployment rate of just 4 percent.  In the last year, its state GDP grew 7.3 percent.

Still, it lacks a high quotient of baristas.  Its probably among the worst states in the US to get an espresso or a machiatto.  Its a good place, though, to get a 49 cent cup of coffee (watery) at a gas station outside of Fargo.

That’s interesting, but its also something of a challenge to Richard Florida‘s ongoing idea of the resilience of creative economies.  Florida doesn’t go so far as to say that more baristas will lead to more jobs, but then again, he doesn’t go too far from that suggestion, either.

It made sense when our best economies were in California and New York, paced simultaneously by high tech and high finance.  Today, our economy is changing.  Agriculture and raw resources seem to be more stable.

The wisdom of crowds suggests that our economy is about to turn a corner. Bank stocks are surging, and even builders are coming back.  Recent data suggests that home sales are finally picking up.

Its almost magic the way that efficient markets can aggregate the perspective of many, smoothing out the optimists against the skeptics.

Still, one of the most prescient predictors of the past 18 months insists that we are hardly out of the woods. Nouriel Roubini argues that even estimates of losses developed by the IMF are overly rosy.  Those reports say that losses should ultimately reach $2.7 trillion.  Roubini insists that the number is more like $3.6 trillion. He even used the “I-word” to describe our banking system.

Housers finds the latest market reactions confusing.  Today we have news that 10 of the 19 banks undergoing stress tests are going to need more capital.  Many expected that B of A and Citi would need aid, but Wells Fargo is a surprise.  Yes, it is true that some approaches would not require more support from taxpayers.  Nonetheless, almost all of the responses imply that shareholders of common stock will face dilution.  How can this not lower share prices?

We also know that a lot of the mortgages still have time remaining to go bad.  The recession didn’t hit until December 2007.  Subprime lending didn’t fall off until the last half of ’07.  The 3-27 adjustable rate mortgages written after the summer of 2006 still haven’t reset.  Its likely that they will not enter default for at least a few months.  Its the same with the 2-28′s written after 2007. 

Other data only adds to our sense that we are not out of the woods.   Unemployment only ramps up the numbers.  Loan modifications, in most instances, are only delaying payments.  Many are actually increasing monthly payments.

Even worse, these stress tests are meant to give everyone a pass.  Its an all-too-serious version of championship trophies in Little League – we want everyone to be a champion.  It hardly makes sense for a hypothetical test to use data inputs for historical events that are more optimistic than the record shows.  That is what was done, nonetheless, when the tests assume an unemployment rate of 7.9 percent for Q1 2009.  The actual number was 8.1 percent.  Going forward, the most severe expectation puts unemployment at 10.3 percent by 2010.  The truth is that we may exceed that level this quarter.  Some states are well above that number, including North Carolina. Moreover, it undercounts newly downshifted workers now on part-time, or people who have given up looking for work.

The country is celebrating its new leadership today, but the storm clouds are gathering and the horizon looks grim.  Yes, the Dow dropped almost five percent today and the nasdaq was off even more.

While the trouble surrounding mortgages spent several years brewing, the next crisis could come much quicker.  Some people are suggesting that a decline in consumer spending, hastened by the lack of cash from home equity, will soon paralyze commercial real estate.  People are just not going to be shopping at the mall as much.  They are going to wear that sweater another season.  They are going to keep their old flat screen.  They are not going to go out and charge new drapes and some nice pillow cases.

These are the feelings that have led directly to bankruptcies at Bombay Company, Circuit City, and Linens & Things. That a lot of jobs, but it also a lot of rent at area malls.  Already, General Growth is on the edge of bankruptcy, following the resignation of members of its founding family, the Bucksbaums. Lightstone Group, owner of Extended Stay America and several malls with about 8 million square feet of retail space, is on equally difficult footing.

But the scary part is how fast things can turn.  As one observer noted, mortgage securitizations were made up of hundreds, or even thousands, of loans.  A single loan to a developer can be worth $25 million.  If one loan goes bad, then all of the subordinated positions in a commercial cdo can be wiped out.  Ouch.  So, the change could be coming soon, and no one is going to believe it.

The implications for neighborhoods and metropolitan areas are grim.  I don’t think we really know what to expect when an entire mall shuts down.  I wonder about the implications for re-using space in exurbs.  I see some possibilities with some optimism, others (James Howard Kunstler) have a darker view.

At the very least, I think it is interesting to consider how a lower utility of suburban living might lead to demographic changes.  Jan Brueckner, a professor at UC-Irvine, suspects that without low transportation costs and safe neighborhoods, that poor households might end up congregating on the outer city.

With the benefit of some time to think, I want to point a few potential shortcomings to Edward Moscovitch’s study of housing supply in US metro areas.

Moscovitch published a report for the Massachusetts Housing Partnership that correlated high levels of housing production with high levels of job growth.  He looked at 242 metro areas from 2000 to 2006.  He found that high shares of manufacturing employment were also likely to be found in regions that had low job growth.

First, I wonder how this study would change if it were compiled over a longer period of time.  The years from 2000 to 2006 were one of low interest rates, a relatively booming economy, and short of 9/11, constant prosperity.   Actually, now that we are in a (more…)