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The first thing that strikes you in the low-income suburbs of south Sacramento is the number of overgrown front lawns. Then you see the worn paintwork on the houses and the cracked walls before being struck by the number of eviction notices tacked to broken windows.

These areas of California’s capital had some of the highest foreclosure rates in the US after the housing bust that wiped out $7tn of homeowner equity in the wake of the financial crisis. Since then, Sacramento has seen a rebound, at least on paper. But there are clear signs that it – and many other cities – are stuck in a multiyear housing hangover that has serious implications for economic recovery.

California, Nevada, Arizona and Florida were among the hardest-hit states when the housing market crashed. Home values plummeted by as much as 50 per cent. But when prices bottomed out in 2012, investors such as Blackstone Group and Colony Capital and smaller operators scooped up cheap properties to convert into rental property.

The result of this surge in investment in places such as south Sacramento has been dramatic. The median price of a house in the area increased more than a third from its trough two years ago to $251,900, mirroring other hard-hit areas that attracted investors. A house price recovery led by big financial investors was not exactly the outcome sought by US policy makers, who had hoped that a combination of cheap prices and low interest rates would lure first-time buyers into the market. Wider home ownership would then help to trigger a broader recovery in the US economy, it was hoped.

Even as the number of distressed sales to investors has declined from the frenetic levels of two years ago, traditional homebuyers – concerned by increasing prices and future interest rate rises – are staying away.

“A lot of people . . . [still] can’t afford to buy a home,” says Arora Wheeler, a stay-at-home mother and south Sacramento resident. “They’d rather rent because of the expenses associated with a house. The economy is no good right now.”

Recent US housing data have shown renewed weakness. Although sales of previously-owned homes across the country have picked up in the second quarter of this year, the improvement follows a slump at the start of 2014. Demand for new homes, which has decreased sharply over the past six months, fell to its lowest level in almost a year in June, data from the commerce department show.

The state of the market is being watched carefully by policy makers as weak wage growth, rising house prices, restrictive lending rules, limited land supply and higher mortgage rates curtail growth. On Monday, Stanley Fischer, vice-chairman of the Federal Reserve, said that a soft US housing recovery was a factor in disappointing global growth and warned that it could be a long-term phenomenon.

The lack of vigour in the new home sector – a key driver of construction spending and jobs – threatens economic growth. Historically, the sector has accounted for 5 per cent of the world’s largest economy, according to the National Association of Home Builders. That figure, however, has dropped closer to 3 per cent in recent years and is a concern for the Federal Reserve.

Industry watchers say the low interest rate environment and the high level of investment activity is masking the fragility of the recovery. Some parts of the US are once again experiencing bubble-like conditions, but other regions are still struggling.

Conditions in Sacramento demonstrate that the national housing market is much more of a patchwork quilt and is largely predicated on the health of the jobs market. Heavily dependent on the state government and construction sector for employment, Sacramento – unlike the neighbouring tech hub of San Francisco – was defined during the crisis by job cuts and wage freezes.

“It’s hard to find a job,” says Ms Wheeler. “My daughter is a pharmacist’s technician . . . she just graduated, she can’t find a job. We need to have jobs to be able to buy [houses].”

Elizabeth Weintraub, a Sacramento property agent, says that homebuyers remain “nervous”. “They’d been priced out of the market so long, then they finally had an opportunity [when prices fell] and it got quickly taken away [by investors],” she adds.

Low- and middle-income workers suffered a steeper drop in earnings during the crisis than their wealthier counterparts. Now, Ms Weintraub and Ms Wheeler, along with other Americans, are waiting for a stronger jobs market to spur a more robust housing rebound.

The unemployment rate in the Sacramento metropolitan region stands close to 7 per cent. Although significantly lower than the January 2010 peak of 12.9 per cent, it is still above the national average of 6.2 per cent.

Although the national jobs numbers tell an upbeat story, having recovered all of their losses since 2008, wage growth has been weak. Over the past 12 months it has remained level with inflation at 2 per cent, which is not enough for consumer spending – which accounts for two-thirds of the US economy – to move into higher gear.

The Fed has signalled it will bring its bond-buying stimulus programme to an end in October. But industry watchers are concerned that a rise in interest rates – which many expect to begin next year – will only keep buyers away.

Economists say that a national recovery in housing is dependent on an across-the-board improvement in the labour market, which has so far been patchy. Job and income growth – within and between regions across the US – has varied significantly, intensifying the divergences across the country’s housing markets.

US Housing 2

PayScale, a wage-tracking company, says income rises have been enjoyed for the most part by workers in a few fast-growing industries such as energy, healthcare and technology.

Katie Bardaro, an economist at PayScale, says: “Metropolitan areas that have a strong prevalence of one or more of these fast-growing industries are the ones that are seeing some of the best-performing housing markets, as they attract talent, particularly people who then want to form households. Wage growth and job growth are region-specific, propelling select housing markets across the US.”

So while homebuyers in Sacramento are waiting on the sidelines, those in Austin, Texas are fuelling demand for property as technology jobs proliferate.

“The fact that the divergence between successful and struggling housing markets is as wide as it is, is significant,” says Louise Keely, chief research officer at The Demand Institute, a think-tank, and co-author of A Tale of 2000 Cities. “We see no reason for these divergences to lessen,” she adds. “If anything, they will persist.”

US Housing 3

The continuation of the uneven recovery, warns Ms Keely, could lock some struggling places into “a self-perpetuating downward spiral”.

Back in Sacramento, Linda Swanson, a property broker, says that although service industry employment has risen in recent months, these jobs are not propelling more buyers into the housing market.

Areas such as Natomas, in north Sacramento, she says, still show signs of damage. These middle-income communities remain half-built and lie largely empty. “Places like this will never reach those boom-time prices again,” she says as she looks out on to streets devoid of people or cars. “Sacramento is still in a lot of trouble.”

Homebuilders, meanwhile, are holding on to once-prime plots in Natomas in the hope that she is wrong.

Austin: Prices lifted by the tech sector

Cyclists pass beneath the downtown skyline on the hike and bike trail on Lady Bird Lake in Austin, Texas September 18, 2012. The 10.1 mile trail runs along the Colorado river through downtown. In Austin, flip-flop-wearing University of Texas students mingle with coat-tie-and-boot-clad state lawmakers and technology workers in jeans. The Lone Star State capital prides itself on its slacker vibe, but it's also the place where a college student named Michael Dell once started a computer business and where Whole Foods Market started and has its headquarters. Picture taken September 18, 2012. REUTERS/Julia Robinson (UNITED STATES - Tags: CITYSPACE SOCIETY TRAVEL) - RTR38JZI

Julia Kahlig-Garuba moved to Austin from New York to start her own cosmetics line.

“As entrepreneurs we could barely afford our apartment much less an extra storage place,” says the former lawyer. “We reached a point in New York where It didn’t make [financial] sense to live there.” Young entrepreneurs keen to keep costs low have been drawn by Austin’s low taxes. Tech companies, from Apple and Google to Dropbox, have been expanding aggressively in the city.

Relative affordability combined with a favourable climate have fuelled demand in Austin’s housing market. The population of the metropolitan area has grown by 20 per cent since 2010 to 1.8m – the urban centre accounts for 851,881 – and is expected to reach 5m by 2050, but residents question whether the growth is sustainable.

Occupancy levels are almost at capacity, creating a crunch for residential properties and pushing prices higher. With as many as 150 people moving to Austin daily some question if the city has the adequate infrastructure to support growth in the coming years.

Austin Texas map

“When visitors shower the city with praise and say they want to move here, I say, ‘Oh really? I hear Denver is nice too’,” quipped one Austin native concerned that affordability was becoming more of a problem.

Home sales jumped almost 20 per cent in 2013 compared with the previous year while average prices increased almost 10 per cent to above $200,000, according to the Austin Board of Realtors.. The number of listings dropped 20 per cent over the same period.

“We have to be smart with our growth,” says Bill Evans, president of the board of realtors. Although construction activity has picked up, Austin has tighter building regulations than elsewhere in Texas, which is restricting supply.

“We have to make sure it’s not difficult for developers to put houses on the ground. There has to be more supply and there have to be places for those not making at least $90,000,” says Mr Evans.

Some worry that Austin will tread the same path as New York or San Francisco, where affordable housing is in short supply.

“Neighbourhoods that saw houses being sold for $210,000 four years ago are now marking up properties to $700,000,” says Eric Bramlett, a property agent. “If they are priced appropriately . . . [they] will generally be sold within a week.”

Some analysts maintain the city will continue on its upward trajectory as long as job growth holds up, but others expect price growth to moderate.

“How long can we keep pace with [this price growth]? I fear we will hit a ceiling,” says Uday Tekumalla, who moved to Austin to work for Dell. “A lot of people we see moving here [have come] from more expensive places. If they don’t see the cost benefit . . . what’s the point?”

Akron: A city where time stood still

C72P3K Road to downtown of Akron , Ohio

When Patty Latham sold her house in Akron, Ohio, she did not think she would buy it back 20 years later in 2012 at a $10,000 discount.

The Midwestern city, known for its rubber and automotive industries – Goodyear and Bridgestone were big local employers – reeled when thousands of blue-collar jobs moved offshore in the 1970s and 1980s. No new industries filled the void. The financial crisis dealt another blow, draining city government coffers and depleting the savings of Akron residents.

“It’s almost as if the jobs market doesn’t exist here,” says Ms Latham, a nurse. “This is not a big city. When you lose that many middle class jobs over time, it creates a toxic environment.”

Although house prices did not drop as dramatically as they did in boom-and-bust towns such as Sacramento, the number of struggling homeowners swelled, properties fell into foreclosure and hundreds became so dilapidated they had to be torn down by local authorities to prevent blight and slum-like conditions. Vacant plots litter the city.

Akron Ohio

“The downturn vastly made worse the problems we already had,” says Ms Latham.

Today, Akron is among the most affordable places to live in the US, but it is also a symbol of the downside of the country’s hit-and-miss housing recovery. A modest house for a family of four sells for $50,000. But in some rundown areas houses can cost as little as a cheap car at $6,000.

Even so, the lack of jobs and income growth is keeping people away. Unskilled workers and high-school leavers struggle to find basic service jobs, while graduates have left in search of work elsewhere.

Housebuilders are only developing more expensive properties on the outskirts of Akron, targeting professionals earning more than $100,000 a year.

“You don’t build houses in the city if there aren’t any jobs or if confidence isn’t there. It’s as simple as that,” says Carmine Torio of a regional homebuilders’ association. “The number of young families are not forming like they used to.”

Although the overall housing market is weak, the rental apartment sector has surged as it has in other US cities. The median entry-level rent price shot from $536 in 2013 to $995 in 2014, according to the National Association of Realtors. Partly as a result demand for social housing has also risen.

“Market-rate rental apartments have rents that are just too high, but these are driven by the private sector so there is nothing we can do about this,” says Helen Tomic, at the city’s department of planning and urban development.

“We’ve built 20 to 30 houses [since the department began its demolition programme]. We know we need to construct more, affordable houses, but we’re waiting for the housing market to pick up.”

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