Jun 11 2007 10:29AM | Permalink | Email this | Comments (2) |
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The 2004-06 housing boom was heavily driven by a huge inflow of foreign immigrants into a small number of cities. The subsequent collapse of the housing market in these cities was substantially due to the end of subsidized mortgages which many immigrants needed to buy a home. While the return of nontraditional mortgages is not likely soon, the failure of immigration reform again means that the immigration flow has not stopped, continues to rapidly add to housing demand and will soon make the same cities hot housing markets again.

Congress has failed to pass this years’ version of immigration reform so we will muddle through for at least another year with the current law and enforcement practices. This means continued rapid population growth in the Metro areas that attract immigrants and a still abundant supply of unskilled labor for contractors and manufacturers. Yes, there is now more risk in hiring illegal immigrants. But the odds of a penalty for employers are still slim compared to the cost savings.

There is no consensus on immigration reform because we are too evenly split into “let them stay” and “send them home” camps. And people in both camps are suspicious that government and legal officials lack the commitment and/or ability to enforce immigration laws, either the current one or a new one. Doing nothing was the inevitable choice. No significant changes in immigration law or practices are likely until one side of the debate is able to able to generate a crisis atmosphere to give their opponents the political cover to accept a proposal that contains items they strongly dislike. Remember how the Patriot Act and the initial resolution approving the Iraq war got passed. The crisis had to be fixed immediately so members could be excused for not fussing over the fine print.

What attracts immigrants to a city, in this order, are jobs under the legal radar, low living costs and previous immigrants with whom they have a language, cultural or religious affinity. The list of cities remains the same, largely in the Southwest, Southeast or the largest Metro areas in the Midwest or Northeast. Jobs are now more plentiful than a year ago in the major immigrant centers despite layoffs in manufacturing and residential construction. The unemployment rate has declined in Los Angeles, Phoenix, Denver, Miami, Dallas, Houston, New York, Chicago and Boston. The rate is unchanged in San Diego, Sacramento and Tampa and up only marginally in Las Vegas.

These cities will again be the hot housing markets as soon as the current surplus of unsold homes is absorbed. Extra inventory is quickly absorbed in a housing market with expanding employment. However, it will take at least three years to regenerate the euphoria that causes the overinvestment in housing that occurred in 2005 and early 2006.