The Recovery Gap, Phoenix Edition

Bloomberg News/ Laura Segall

A development in Gibert, Arizona, in the Phoenix metro area

Welcome to the Phoenix, Arizona, edition of The Market Now. Two Bloomberg stories in the past two days included powerful on-the-ground reporting in Phoenix. They make for a telling study in contrasts.

Today, Heather Perlberg reports on the Phoenix homeowners emerging from underwater mortgages. Perlberg kicks off the narrative with a homeowner who finally saw prices recover enough that she could sell the house her family had outgrown, pay off the mortgage and upgrade to a larger place. Though prices are still well below their 2006 peak in Phoenix, they’re recovering fast.

Also from Phoenix comes yesterday’s article by Jeff Green and Amanda J. Crawford about the increase in the payroll tax. They pull in tight on a high school teacher whose $60 a month payroll-tax increase means cutting bills by shopping for groceries in the junk-food aisles of the dollar store. Dinners out are out of the question.

The two stories together neatly sum up the mixed economy. Investors and homeowners have benefitted from low interest rates and the Fed’s efforts to jump-start the housing market. Big investors in Phoenix have known that for a while, as this Bloomberg story noted in October. Those improvements in the investment climate haven’t been matched by gains in middle-class income.

The chart above, using Phoenix data from the St. Louis Federal Reserve, gives you some idea of the long-term trend in incomes and home prices. The black line in Phoenix’s per capita income, the red is home prices. You can see just how far home prices outstripped incomes in the boom. There’s room for a recovery, but not to anything like those boom-era levels.

That’s the reason that, as regular readers know, The Market Now has been skeptical of the housing rebound. Low rates will boost housing, and perhaps easier mortgage standards may too as banks turn on the lending spigot. Over the long term, though, home prices will keep rising only if disposable incomes do, too.

A version of this post appears in the Market Now newsletter. Click here to register at and subscribe to The Market Now daily email.

What do you think about this article? Comment below!