What is keeping single-family housing weak?

Surprisingly, two variables can explain 38% of the metro area variation in the single-family growth from 2000 to 2004 to today: the number of jobs today relative to 2000 to 2004, and single-family house prices relative to the prerecession peak. The change in the unemployment rate had no statistically discernable effect.

Both measures have an intuitive relationship with the housing market. What these results suggest is that net job growth may not be enough to drive a single-family recovery. Instead, long-lasting scars from the housing bubble remain an issue.

That is from Adam Ozimek.

Comments

I'm not sure "scars" are so important. What does that mean, lender unwillingness to take risks on marginal borrowers? How much more private risk-taking on mortgages would be “normal”? Especially given that the market is dominated by Fannie/Freddie. I think the crucial thing that happened was the requirements for guarantees went up. Fannie/Freddie guarantees are a subsidy of mortgage interest rates to qualified borrowers, which drives up the price of homes. Borrowers who don’t qualify for guarantees would have to pay those inflated prices and market rates plus their personal risk premium, and that’s just not going to happen on a big scale without a bubble on.

Are you arguing that the ability to repay a mortgage is an unreasonable loan requirement in order to qualify for the the interest rate that is 3% higher than the cost of money?

That it would be better for mortgages to be very risky and the typical interest rate is 10% plus over the cost of money to drive the market price of housing below the labor costs of building a new house and pay for running the roads and other utility services needed to convert farm land or desert to housing?

Converting almond groves to housing would save water, and the only thing that needs to be done is building the roads, the water and sewer service, power and telco lines, and then build the housing, which should be almost entirely the cost of labor because if the drought continues, the land with the dead trees won't be worth much.

The high cost of land and the real estate on it in California is determined by the demand for the view and the easy access by transportation to other desirable things, like the beaches. Texas had a larger population in 1920, but from the 30s on, California attracted people faster and thus California overtook and blew past Texas in population, even though taxes and such in California supposedly made California such a bad economic choice compared to Texas, or Mississippi, North Dakota,...

Housing is very cheap in Detroit, so why aren't people buying in Detroit? Would eliminating the GSEs make Detroit's population soar as buyer flood in to buy using 10% interest mortgages? Can a house that the city is selling off as fixer upper for $200 or $500 going to fall in price by a big amount with 10% interest mortgages?

housing supply is constricted by zoning, pseudo-leftist regulations etc....too little supply--> increases prices beyond what people can pay or want to pay.

There is a decades long cap on new housing in the cities with the most income opportunities, and since the crisis we have implemented sharp negative shocks on homeownership through credit markets. That means the implied causality is backwards here. In the current context, low permits in those cities causes low employment growth, not the other way around. And since there are widespread constrictions to housing now in supply and demand, in places where there is pressure for population inflows those cities generally experience price inflation along with housing quantity expansion.

Where are the vacant lots in cities with the most income opportunities?

The development in such cities is basically converting decades old housing units for 4 families into a single housing unit for one family which is often one person, maybe two.

Boston and NYC and Frisco added housing by filling in ocean - building on centuries of trash dumps. While historically, cities needed to be on water for commercial transport, today the cities with the population growth are on water because people want to live seeing or with easy access to the water. People have bought almost all the coast line and are not willing to sell at a low price just to satisfy your view that lots of cheap housing could be built there is they sold the land for $10,000 instead of demanding $10,000,000.

I note the conservative legal groups that on the one hand fight to keep the public off the public beach in front of high priced houses on a hundred acres of beach front property, claiming he paid millions for his privacy, also blame the liberals for blocking development of the "open land" and driving up the cost of housing.

Yep. You go to the local planning commission in Manhattan and that's what you see. Locals begging builders to put up muti unit apartment buildings - anything. Begging. And the builders say, "sorry. There's just nothing we can do." You totally nailed it mulp.

The article was about *single-family housing*. How does the comment about multi-unit apartment buildings relate to that? If anything, the lack of permits for multi-unit housing in inner and near-innner cities should result in *more* single family houses being built as people (are forced to) move further out into the suburbs.

Also, it is not clear to me how "metro-area" was defined for purposes of this analysis. If "metro area" is not expanded to account for sprawl, of course the number of new single family units in those areas will drop.

I was responding to mulp. But that's a good point Vivian. I think that explains much of what was going on in the 2000s. The limits do extend to the suburbs so that migration due to housing costs does seem to happen between metro areas on net more than within them.

I wonder when someone is going to park a big cruise ship at San Francisco and rent out the cabins.

I've wondered that myself. Why doesn't the bay look like Hong Kong?

Google made a first attempt along those line with some barges. San Francisco Bay Conservation and Development Commission wouldn't give them the permits. I suspect anyone trying it with cruise ships would get the same reception.

Surprise, surprise.
It's funny how you'll see articles about SF or NYC, and all the locals will be like "we really need to solve the housing problem in this city. I really support that. But I'm individually against every single building currently proposed, because it blocks someone's view or it doesn't contain the range of rent levels that I've decided it should have." Then there will be a think piece in the local paper pondering why there still is a housing problem and it will have about 3 paragraphs of proposals that all boil down to, "we need to be more punitive towards developers and landlords."

Houses are being built, at a breakneck pace, in the second home market. Of course, as second homes they are being built for those with very good jobs and a hefty net worth. I know because I have a home in one of those places. After seven years of nothing, the floodgates opened at the end of last year and show no signs of closing. At least not until the next financial collapse. It's just another indication of an asymmetrical recovery. Asymmetrical. It's much more palatable than unequal. The houses being built in this asymmetrical recovery are, well, asymmetrical: they are being built mostly by Mexicans, the advantage for which, besides cheap labor, is that they work Saturdays and Sundays. And nights too. The disadvantage for which is that they play loud Mexican music while working. Day and night. The speed at which these asymmetrical houses are being built might suggest concern by developers that the floodgates will soon close, financially stressed owners of these second homes will flood the market with unwanted inventory (they always sell the second home, not the first), and financial ruin will follow. This being the Bible belt, buyers of these asymmetrical homes reassure themselves with this New Testament passage (from Matthew): Don't worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.

The Talmud recommends diversification. A person should always divide his money into three: one third in land, one third in commerce, one third at hand. We could translate that to 1/3 in a home, 1/3 at Vanguard, and 1/3 in savings. That last 1/3 would be a drag on return right now, but safety first.

Is it necessarily specified that the three parts must be of equal size?

Years ago, Rosenfeld and I attended a (free) dinner and investment advisory session which presented precisely the Talmudic suggestions of one-third each asset class. They presented stats to "prove" the efficacy of the strategies. I would not include long term bonds at this time.

You can't really be for open zoning, low priced housing, and a "recovery" to bubble levels can you?

Housing is real cheap in Detroit. Recovery to bubble levels would be for houses to increase from $500 to $5000.

Why isn't the cheap housing in Detroit being snapped up?

When urban blight is your answer for affordable housing, you might be doing it wrong.

It's not cheap. The purchase price is low, but property tax rates are the highest in the nation AND property valuations for tax purposes are way out of whack (and aren't reset by 'distressed' sales, which is to say most house sales in Detroit). Also, if you intend to drive, car insurance rates are also highest in the nation and could easily exceed your mortgage payments.

We would be far better off if we got average families to balance index funds with their home as long term investment.

Low cost housing and a portfolio beats an all-in bet on single family homes.

But, but ownership society! Yeoman farmers!

I think that for decades with rising prices the middle class over-invested in housing. Now with more stable prices in most places people are being more rational and buying smaller houses. The millennials in my office are buying smaller homes than my generation did.

It's dishonest to use "explain" in the statistical sense but to sneak it into prose where it will deceive the layman into thinking the verb is used in its everyday sense.

If you're a developer, you have to develop or go into some other line of work, maybe yoga instruction. Anyway, developers need money to operate and it's easier to get that money if they're building multiple occupancy buildings that are owned by a single entity. If the buyer of a single family home quits making mortgage payments there has to be a foreclosure process and all the problems that entails. If an apartment dweller fails to make his rent payment he gets evicted and new occupants move in, a normal affair. No immediate crisis for the building ownership or the party holding the mortgage.

Plenty of room for development in our state and national parks. And we're not living under geodesic domes, are we? Up, up and up!

I'm near Seattle, so I've noticed a lot of rental housing coming onto the market. This is a result of the increasing inequality. The wealthy can afford to buy multiple units while most working people cannot afford to buy anything. Before the crash Seattle was producing condo units for sale to the upper middle class. Now it is mainly rental units owned by the extremely wealthy.

Basically a family with two adults working is no longer seen as a good credit risk which in our economic climate makes sense.

Have you tried to get a mortgage lately? When we bought our house last year, my wife had been back at work for less than two years. They wanted a tax return from the last year she worked before that - 2004.

You also have a generation of would be home buyers not entering or delaying entry into the housing market because they (a) already carry a mortgage in the form of student loan debt, and/or (b) are getting married later and having fewer kids, or not at all.

What is keeping single housing weak?

The Bubble years were way to strong for one. Look at historical housing prices and today prices on still historically high compared to any other period than 2000s.

Secondly, it is taking way too long for young people to be settled in the careers and getting married. (Unfortunately, I believe it is the right thing for young people to do but it is significantly impacting the economy.) Being a former 1990s slacker, young people are living their 'Friends' years longer.

Lastly, it is a lot more profitable to build expensive houses and not small family track houses.

Housing prices are still strong as wealthy people buy them as rental units. Supply side economics has been so successful that we are awash in capital. Returns on investment have been falling for decades. The only real returns have been the result of inflation in assets that only the wealthy can afford like shares of corporations, high end art, investment real estate, first growth wines and so on.

Maybe we pissed away $2 trillion on bad loans.

I feel that immigration and Sailerian affordable family formation should be brought into this, but I'm becoming a one trick pony.

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