State of the Nation s Housing 28: A Preview Eric S. Belsky Remodeling Futures Conference April 15, 28 www.jchs.harvard.edu
The Housing Market Has Suffered Steep Declines Percent Change Median Existing Single-Family House Price Home Equity Existing Total Home Sales Mortgage Refinancing Total Housing Starts New Single- Family Home Sales -5-1 -15-2 -25-3 -35-4 25-6 26-7 25-7 Note: Changes in dollar values are adjusted for inflation by the CPI-UX for All Items. Sources: US Census Bureau, New Residential Construction; National Association of Realtors, Existing Single Family House Prices; Freddie Mac; Federal Reserve Board, Flow of Funds Accounts.
The Housing Boom Was Rooted in Unusually Low Mortgage Rates and Tight Markets That Sparked An Unprecedented Run-Up in Home Prices 1 9 2 Real Income and House Prices (Indexed 1968=1) 8 7 18 6 5 16 4 3 14 2 1 12 196s (June 1965) 197s (April 1972) 198s (Mar 1987) 199s (Oct 1993) Month of Lowest Interest Rate by Decade Mortgage Interest Rate (Percent) 2s (June 23) Months Supply 1 8 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Median Single Family Home Prices Median Household Income 1999 21 23 25 Notes: Mortgage interest rate is the Federal Housing Finance Board s Effective Composite Interest Rate for All Mortgages. Months supply is the number of months needed to sell current inventory at current sales rate. Household income and house prices are adjust for inflation using the monthly CPI-UX for All Items. Sources: Federal Housing Finance Board, Monthly Interest Rate Survey; US Census Bureau, New Residential Construction; National Association of Realtors, Median Existing Single Family House Price; Moody's Economy.com; Bureau of Labor Statistics, Consumer Price Index.
With Demand Dropping Off Faster than Production, the Number of Vacant Units Ballooned 5 Percent Change 25-27 4 3 2 1-1 -2-3 -4 New Home Sales Housing Completions Held Off Market For-Sale Vacant Note: New home sales and housing completions are for single-family homes only. Sources: US Census Bureau, New Residential Construction and Housing Vacancy Survey.
Drops in Permits Have Been Dramatic in Many Metros Change in Permits 25-27 Greater Than 5 Percent Decline 25 to 5 Percent Decline Less Than 25 Percent Decline Increase Source: US Census Bureau, New Residential Construction.
While a Handful of Metros were Still Gaining, Most Started to See Price Declines in 27 6 Number of Metropolitan Areas 5 4 3 2 1 Declined Greater than 2 Percent Declined 1-2 Percent Declined 5-1 Percent Declined to 5 Percent No Decline (New Peak in Q4 27) Total House Price Decline from Peak Quarter Since 25 to Fourth Quarter of 27 Year of Peak Quarter: 25 26 27 No Decline Notes: Peaks and declines are based on quarterly median house price data, seasonally adjusted. No Decline means median house prices reached a new peak in the fourth quarter of 27. Source: National Association of Realtors ; Moody's Economy.com.
Recent Declines Have Wiped Out Several Years of House Price Appreciation in Several Metros Years of Growth in Median Home Price Wiped Out as of 27 Notes: Annual declines based on fourth quarter to fourth quarter median sales price changes. 'One Year' of appreciation wiped out means the Q4 27 median is lower than Q4 26 level but higher than Q4 of 25. None' means Q4 of 27 was higher than Q4 of 26, but may be lower than an earlier quarter in 27. Source: National Association of Realtors, Median Existing Metro Area Single Family Home Prices. None (Increase Since '6) 1 to 2 Years 3 to 4 Years 5 or More Years
Both Declining Housing Wealth Effects and Declines in Production Were a Major Drag on the Economy.6 Contribution to Percent Change in Real Gross Domestic Product (Percentage Point).4.2 -.2 -.4 -.6 -.8-1 21 22 23 24 25 26 27 Residential Fixed Investment Housing Wealth Effects Sources: Moody s Economy.com; Bureau of Economic Analysis.
This Downturn is Shaping Up to Be the Worst in a Generation 4 Change After 24 Months From Peak in Housing Starts (Percent) 3 2 1-1 -2-3 -4-5 -6 Housing Starts Existing Single-Family Home Sales New Single-Family Home Sales Median Existing Single-Family House Price Median New Home Price October 1972-74 April 1978-8 January 1986-88 January 26-8 Note: Downturns are based on cyclical peak months in starts. Outlier peaks such as January 1972 and February 1984 are not used. All data is monthly data seasonally adjusted by Moody's Economy.com. House price changes are adjusted for inflation by the CPI-UX for All Items. Sources: US Census Bureau, New Residential Construction; National Association of Realtors, Median Existing Single Family House Price.
Recessions Usually Exacerbate Housing Downturns, but Afterward Housing Is Quick to Recover 4 Quarterly Change in Housing Starts (Percent) 3 2 1-1 -2-3 December 1969 - November 197 November 1973 - March 1975 January 198 - July 198 July 1981 - November 1982 July 199 - March 1991 March 21 - November 21 3 Months Leading Into Recession First 3 Months of Recession Last 3 Months of Recession First 3 Months After Recession Note: Quarterly data derived from sums of monthly data, seasonally adjusted by Moody's Economy.com. Sources: US Census Bureau, New Residential Construction.
In the Most Glutted Markets, Surpluses Exceed Two Percent of the Owner Stock Excess Vacant-For-Sale Housing Units as a Share of Total Owner Stock No Excess Owner Stock -1% of Owner Stock 1-2% of Owner Stock 2-3% of Owner Stock Note: Methodology adapted from Freddie Mac. Oversupply is percentage points increase in homeowner vacancy rates from statespecific average homeowner vacancy rates 1999-21. Does not include possible oversupply that is showing up under held off market or potentially also as an increase in rental vacancy rates. Also does not divide surplus units into total stock in each state. Sources: US Census Bureau, Housing Vacancy Survey and 26 American Community Survey.
The Recent Spike in Loans Entering Foreclosure Will Weigh Heavily on Markets 45 Loans Entering Foreclosures.9 4.8 Number of loans (Thousands) 35 3 25 2 15 1.7.6.5.4.3.2 Share of loans 5.1 1998 1999 2 21 22 23 24 25 26 27. Number Share Source: Mortgage Bankers Association, National Delinquency Survey.
Loans with Affordability Features and Adjustable Rates Dramatically Lost Market Share in 26 and 27 Share of Loan Originations (Percent) 2 Affordability Products 45 Adjustable Rate Loans 18 4 16 35 14 12 1 8 6 3 25 2 15 4 1 2 5 23 24 25 26 27 23 24 25 26 27 Interest Only Payment Option Notes: Loans with affordability features are interest only and payment-option. Shares are of the number of originations of prime and subprime loans. Sources: First American LoanPerformance; Federal Housing Finance Board, Monthly Interest Rate Survey.
Subprime Credit Originations Have Collapsed 7 Billions of 27 Dollars 6 5 4 3 2 1 21 22 23 24 25 26 1Q7 2Q7 Source: Inside Mortgage Finance, 27 Mortgage Market Statistical Annual, adjusted for inflation by Bureau of Labor Statistics CPI-UX for All Items.
The National Homeownership Rate Surged Before the Subprime Lending Boom and Then Tailed Off Subprime Share of All Mortgage Originations (Percent) 24 Homeownership Rate (Percent) 7 21 69 18 68 15 67 12 66 9 65 6 64 3 63 62 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 Subprime Market Share Homeownership Rate Note: Subprime share is of the dollar volume of all originations. Source: US Census Bureau, Housing Vacancy Survey; UBS, Subprime Share of MBS Gross Issuance.
Slightly Lower Mortgage Costs in 27 Did Little to Ease Recent Run Up in Affordability Problems 1,4 Change in Monthly Mortgage Costs (27 Dollars) 1,2 1, 8 6 4 2-2 Boston Chicago Miami Washington DC San Francisco Los Angeles 23-26 26-27 Notes: Costs assume a median priced home purchased with a 1% down payment and 3-year fixed rate mortgage. Prices adjusted for inflation by the CPI-UX for All Items. Sources: National Association of Realtors, Median Existing Single Family House Price; Federal Home Loan Bank, Fixed Rate Contract Interest Rate for All Homes.
Apartment Property Prices are Rising Faster than Their Net Operating Income Annual Percent Change 15 1 5-5 -1 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 Property Prices Net Operating Income Source: National Council of Real Estate Investment Fiduciaries.
Severe Cost Burdens Fall Sharply With Income 14 Households with Severe Cost Burdens in 26 (Millions)... But Are Now More Common Among Middle-Income Owners Than Renters 14 Incidence of Severe Cost Burdens in Households 26 (Percent) 12 12 1 1 8 8 6 6 4 4 2 2 Bottom Lower Middle Upper Middle Income Quartile Owners Renters Severely Burdened in 21 Increase 21-26 Lower Middle Upper Middle Notes: Income quartiles are equal fourths of all households sorted by pre-tax income. Severely cost-burdened households spend more than 5% of total household income on housing. Sources: JCHS tabulations of the 21 and 26 American Community Surveys.
Rising Energy Costs Are Cutting Into Other Spending of Low Income Households Share of Average Total Annual Expenditures (Percent) 18 16 14 12 1 8 6 4 2 22 23 24 25 26 Gasoline and Motor Oil Public Transportation Utilities, Fuels, and Public Services Note: Low income households are defined as those in the bottom 2 percent of all households sorted by pre-tax household incomes. Source: Bureau of Labor Statistics, Consumer Expenditure Survey.