June 27, 2016
The State of the Union’s Housing in 2016
The Joint Center for Housing Studies of Harvard University has released its excellent annual report, The State of the Nation’s Housing for 2016. It finds,
With household growth finally picking up, housing should help boost the economy. Although homeownership rates are still falling, the bottom may be in sight as the lingering effects of the housing crash continue to dissipate. Meanwhile, rental demand is driving the housing recovery, and tight markets have added to already pressing affordability challenges. Local governments are working to develop new revenue sources to expand the affordable housing supply, but without greater federal assistance, these efforts will fall far short of need. (1)
Its specific findings include,
- nominal home prices were back within 6 percent of their previous peak in early 2016, although still down nearly 20 percent in real terms. The uptick in nominal prices helped to reduce the number of homeowners underwater on their mortgages from 12.1 million at the end of 2011 to 4.3 million at the end of 2015. Delinquency rates also receded, with the share of loans entering foreclosure down sharply as well. (1)
- The US homeownership rate has tumbled to its lowest level in nearly a half-century. . . . But a closer look at the forces driving this trend suggests that the weakness in homeownership should moderate over the next few years. (2)
- The rental market continues to drive the housing recovery, with over 36 percent of US households opting to rent in 2015—the largest share since the late 1960s. Indeed, the number of renters increased by 9 million over the past decade, the largest 10-year gain on record. Rental demand has risen across all age groups, income levels, and household types, with large increases among older renters and families with children. (3)
There is a lot more of value in the report, but I will leave it to readers to locate what is relevant to their own interests in the housing industry.
I would be remiss, though, in not reiterating my criticism of this annual report: it fails to adequately disclose who funded it. The acknowledgments page says that principal funding for it comes from the Center’s Policy Advisory Board, but it does not list the members of the board.
Most such reports have greater transparency about funders, but the interested reader of this report would need to search the Center’s website for information about its funders. And there, the reader would see that the board is made up of many representatives of real estate companies including housing finance giants, Fannie Mae and Freddie Mac; national developers, like Hovnanian Enterprises and KB Homes; and major construction suppliers, such as Marvin Windows and Doors and Kohler. Nothing wrong with that, but disclosure of such ties is now to be expected from think tanks and academic centers. The Joint Center for Housing Studies should follow suit.
June 27, 2016 | Permalink | No Comments
June 24, 2016
Urban Income Inequality
The union-affiliated Economic Policy Institute has released a report, Income Inequality in the U.S. by State, Metropolitan Area, and County. The report finds that
The rise in inequality in the United States, which began in the late 1970s, continues in the post–Great Recession era. This rising inequality is not just a story of those in the financial sector in the greater New York City metropolitan area reaping outsized rewards from speculation in financial markets. It affects every state, and extends to the nation’s metro areas and counties, many of which are more unequal than the country as a whole. In fact, the unequal income growth since the late 1970s has pushed the top 1 percent’s share of all income above 24 percent (the 1928 national peak share) in five states, 22 metro areas, and 75 counties. It is a problem when CEOs and financial-sector executives at the commanding heights of the private economy appropriate more than their fair share of the nation’s expanding economic pie. We can fix the problem with policies that return the economy to full employment and return bargaining power to U.S. workers.
The specific findings are very interesting. They include,
- Overall in the U.S. the top 1 percent took home 20.1 percent of all income in 2013. (4)
- To be in the top 1 percent nationally, a family needs an income of $389,436. Twelve states, 109 metro areas, and 339 counties have thresholds above that level. (2)
- Between 2009 and 2013, the top 1 percent captured 85.1 percent of total income growth in the United States. Over this period, the average income of the top 1 percent grew 17.4 percent, about 25 times as much as the average income of the bottom 99 percent, which grew 0.7 percent. (3)
- Between 1979 and 2013, the top 1 percent’s share of income doubled nationally, increasing from 10 percent to 20.1 percent. (4)
- The share of income held by the top 1 percent declined in every state but one between 1928 and 1979. (4)
- From 1979 to 2007 the share of income held by the top 1 percent increased in every state and the District of Columbia. (4)
- Nine states had gaps wider than the national gap. In the most unequal states—New York, Connecticut, and Wyoming—the top 1 percent earned average incomes more than 40 times those of the bottom 99 percent. (2)
- For states the highest thresholds are in Connecticut ($659,979), the District of Columbia ($554,719), New Jersey ($547,737), Massachusetts ($539,055), and New York ($517,557). Thresholds above $1 million can be found in four metro areas (Jackson, Wyoming-Idaho; Bridgeport-Stamford-Norwalk, Connecticut; Summit Park, Utah; and Williston, North Dakota) and 12 counties. (3)
The income threshold of the top 1% for individual counties is also interesting. For example, New York County (Manhattan) comes in second, at $1,424,582 (following Teton, WY at $2,216,883) and San Francisco County comes in 24th at $894,792. (18, Table 6)
Income inequality is a fact of life for big cities and affects so many aspects of American life — housing, healthcare, education, to name a few important ones. The Economic Policy Institute focuses on union-movement responses to income inequality, but urbanists could also consider how to respond systematically to income inequality in the design of urban systems like those for healthcare, transportation and education. If the federal government is not ready to do anything about income inequality itself, states and local governments can make some progress dealing with its consequences. That is a far better route than acting as if income inequality is just some kind unexpected aspect of modern urban life and then bemoaning its visible manifestations, such as homelessness.
June 24, 2016 | Permalink | No Comments
June 23, 2016
Why Houses Don’t Sell
I was quoted on Trulia in 8 Reasons Your House Isn’t Selling. It opens,
It’s a seller’s market in many cities across the U.S. If your home is in one of those cities, say Charleston, SC, or Colorado Springs, CO, and isn’t getting offers, something could be wrong. The good news? Knowing there’s a problem is the first step toward resolving it. However, there could be many reasons your house isn’t selling. We’ve asked real estate professionals and agents from all over the country what those top reasons might be — and they’ve provided some sound advice on how to remedy each situation.
1. You’re overconfident
Being in a seller’s market might mean that your home will get snapped up for premium price, no matter its condition. But that isn’t always the best strategy to count on. “Sometimes homeowners and agents get overconfident in a seller’s market and get lazy about ‘Home Selling 101,’” says Sep Niakan, broker and owner of HB Roswell Realty in Miami, FL.
Solution: Be realistic from day one. Although you may love your house, brace yourself for it to potentially sit on the market for quite some time. And no matter the market, it’s still important to “position your home to sell well,” says Niakan. “What does that mean? Staging, staging, and more staging.
2. The house is priced too high
Classic supply and demand conditions come into play in a seller’s market: There’s high demand, yet low supply. Therefore, you can usually expect to get more money for your home. But that doesn’t mean the sky’s the limit when it comes to your listing price. “In a seller’s market, a seller may feel comfortable pushing the asking price a bit higher, and this can be a huge mistake,” says Chase Michels of Brush Hill Realtors in Downers Grove, IL. “Determining the best asking price for a home is one of the most important aspects of selling a home. If your home is listed at a price that is above market value, you will miss out on prospective buyers.”
Solution: Make sure that you and your agent are certain of the value of your home in your market and price it right. “Get an analysis of the local market with a professional agent, solid comparables, and specific market trend data,” says Jill Olivarez, a Miramar Beach, FL, real estate agent.
3. The home needs some TLC
It can be a bitter pill to swallow to pay for home improvements that you may not enjoy for long. But if you want to sell for full asking price, you might need to get your house in a condition that warrants it — and not base this number only on price per square foot. “Retail buyers understandably still want the most house for their money,” says Barbara Grassey, author of How to Sell Your House Fast in a Slow Market and founder of the West Florida Real Estate Investors Association.
Solution: “The seller should have amenities comparable to other properties for sale in that price range and should really upgrade certain amenities,” says Grassey. Some upgrade examples, she says, include a pull-down gooseneck faucet, an upgraded ceiling fan, a double-bar towel rack, or upgraded door handles. They sound simple, but a few small changes can make a big impact.
4. There’s a problem with the title
“Title” in this case doesn’t mean the cute name you might have given your place (“The Laurels,” “The Conners’ Corner Cottage,” etc.). Rather, it’s the document that shows ownership. “One reason a house won’t sell is because there is a problem with the title to the house that spooks buyers,” says David Reiss, law professor at Brooklyn Law School in Brooklyn, NY. Here are some examples he gives of title problems:
- Conveyance without a recorded deed (can sometimes happen in transfers between family members).
- A paid-off mortgage that is still showing up as a valid lien on the house.
- A mechanic’s lien that was filed for work done on the house by a subcontractor.
Solution: “Some [title] problems just require a little time to resolve,” says Reiss. Contact the title company to find out what you need to do to prepare for selling — then do it.
June 23, 2016 | Permalink | No Comments
June 22, 2016
Walkers in the City
The Center for Real Estate and Urban Analysis at The George Washington School of Business has released Foot Traffic Ahead: Ranking Walkable Urbanism in America’s Largest Metros for 2016. The Executive Summary opens,
The end of sprawl is in sight. The nation’s largest metropolitan areas are focusing on building walkable urban development.
For perhaps the first time in 60 years, walkable urban places (WalkUPs) in all 30 of the largest metros are gaining market share over their drivable sub-urban competition—and showing substantially higher rental premiums.
This research shows that metros with the highest levels of walkable urbanism are also the most educated and wealthy (as measured by GDP per capita)— and, surprisingly, the most socially equitable. (4)
This strikes me as a somewhat over-optimistic take on sprawl, but I certainly welcome the increase in walkable urban places over a broad swath of metropolitan areas. The report’s specific findings are that
There are 619 regionally significant, walkable urban places—referred to as WalkUPs—in the 30 largest U.S. metropolitan areas. These 30 metros represent 46 percent of the national population (145 million of the 314 million national population) and 54 percent of the national GDP.
The 30 metros are ranked on the current percentage of occupied walkable urban office, retail, and multi-family rental square feet in their WalkUPs, compared to the balance of occupied square footage in the metro area. The six metros with the most walkable urban space in WalkUPs are, in rank order, New York City, Washington, DC, Boston, Chicago, San Francisco, and Seattle.
Economic Performance: There are substantial and growing rental rate premiums for walkable urban office (90 percent), retail (71 percent), and rental multi-family (66 percent) over drivable sub-urban products. Combined, these three product types have a 74 percent rental premium over drivable sub-urban.
Walkable urban market share growth in office and multi-family rental has increased in all 30 of the largest metros between 2010-2015, while drivable sub-urban locations have lost market share. The market share growth for 27 of the 30 metros is two times their market share in 2010. This is of the same or greater magnitude as the market share gains of drivable sub-urban development during its boom years in the 1980s, but in the reverse direction.
Indicators of potential future WalkUP performance show that many of the metros ranked highest for current walkable urbanism are also found at the top of our Development Momentum Ranking—namely, the metros of New York City, Boston, Seattle, and Washington, DC. This indicates that these metros will continue to build on their already high WalkUP market shares and rent premiums.
There are also some surprising metros in this top tier of Development Momentum rankings, including Detroit, Phoenix, and Los Angeles.
The most walkable urban metro areas have a substantially greater educated workforce, as measured by college graduates over 25 years of age, and substantially higher GDP per capita. These relationships are correlations, and determining the causal relationships requires further research to prove.
Walkable urban development describes trends resulting from both revitalization of the central city and urbanization of the suburbs. For nearly all metros, the future urbanization of the suburbs holds the greatest opportunity; metro Washington, DC, serves as a model, splitting its WalkUPs relatively evenly between its central city (53 percent) and its suburbs (47 percent).
Social Equity Performance: The national concern about social equity has been exacerbated by the very rent premiums highlighted above, referred to as gentrification. Counter-intuitively, measurement of moderate-income household (80 percent of AMI) spending on housing and transportation, as well as access to employment, shows that the most walkable urban metros are also the most socially equitable. The reason for this is that low cost transportation costs and better access to employment offset the higher costs of housing. This finding underscores for the need for continued, and aggressive, development of attainable housing solutions. (4, footnote omitted)
There is a lot of import here. Is there more than a correlation between walkability and the educational level of the workforce and, if so, why? Why don’t more housing affordability studies take into account transportation costs when evaluating the affordability of a given community? What is the trend line of this new direction toward urbanism and how far can it go in the face of decades of investment in car-based communities? This annual study will help us answer those questions, over time.
June 22, 2016 | Permalink | No Comments
June 21, 2016
How We Feel About Credit Scores
WalletHub conducted its 2016 survey of American knowledge and opinions of credit scores and interviewed me about their findings:
What is your reaction to one-third of survey respondents believing that anyone can access their credit score/report, as if it is public information?
Given the complexity of the consumer finance industry, it is not surprising that many consumers operate in a fog of ignorance and misunderstanding about their rights and how the industry operates. Some people may be aware that many businesses can access their credit report and that many businesses contribute to their credit report, both without the clear consent of the consumer. This all leads to a sense that their financial profile is out of the consumer’s hands. And while that is not technically correct, there is a lot of truth to it. Decisions are being made about you — what interest rate will be offered to you, whether you will receive a loan, will a bank open a checking account that you applied for — and you only have a partial sense of the criteria upon which they are being made.
Why do you think 49% of people would not marry someone with bad credit?
People understand that bad credit can have a big impact on life choices — can we buy a house or a car? That can influence decisions about the suitability of a spouse as much as other financial concerns, like the job the potential spouse has. Credit scores are also being used for decisions other than whether to extend credit to someone — for instance, by landlords deciding whether to rent an apartment. These expansive uses of credit scores foster a sense that credit scores act as a broader judgment of the potential spouse, like a gauge of moral worth.
Why is money our leading societal stressor?
We live in a society that has become more divided between haves and have-nots over the last few generations. The gap shows up in the big difference between the number of people at the top (a small percentage) and the bottom (a large percentage) of the distribution of income and wealth. It also shows up in the difference in the amount of money that puts you at the top and bottom — the rich have gotten richer and the poor still have very little in terms of wealth and income. Money gets seen as being able to determine destiny and thus it stresses people out, particularly because the American safety net is not as tightly woven as those of other developed countries.
Why do you think people would prefer to be overweight, to have bad eyesight and to be going bald than to have bad credit?
Henry Kissinger has said that power is the ultimate aphrodisiac and Marilyn Monroe (in “Diamonds Are a Girl’s Best Friend”) has sung that “A kiss may be grand/But it won’t pay the rental.” Money is power, and in the age of Matthew Diamond’s “Evicted,” being able to pay the rental is a pretty attractive quality.
June 21, 2016 | Permalink | No Comments
June 20, 2016
Consumers’ Credit Score Score
The Consumer Federation of America and VantageScore Solutions, LLC, released the findings from their sixth annual credit score survey. Their findings are mixed, showing that many consumers have a basic understanding of how a credit score operates, but that many consumers are missing out on a lot of how they work. They find that
a large majority of consumers (over 80%) know the basic facts about credit scores:
- Credit scores are used by mortgage lenders (88%) and credit card issuers (87%).
- Key factors used to calculate credit scores are missed payments (91%), personal bankruptcy (86%), and high credit card balances (85%).
- Ethnic origin is not used to calculate these scores (believed by only 12%).
- 700 is a good credit score (81%).
Yet, the national survey also revealed that many consumers do not understand credit score details with important cost implications:
- Most seriously, consumers greatly underestimate the cost of low credit scores. Only 22 percent know that a low score, compared to a high score, typically increases the cost of a $20,000, 60-month auto loan by more than $5,000.
- A significant minority do not know that credit scores are used by non-creditors. Only about half (53%) know that electric utilities may use credit scores (for example, in determining the initial required deposit), while only about two-thirds know that these scores may be used by home insurers (66%), cell phone companies (68%), and landlords (70%).
- Over two-fifths think that marital status (42%) and age (42%) are used in the calculation of credit scores. While these factors may influence the use of credit, how credit is used determines credit scores.
- Only about half of consumers (51%) know when lenders are required to inform borrowers of their use of credit scores – after a mortgage application, when a consumer does not receive the best terms on a consumer loan, and whenever a consumer is turned down for a loan.
Overall, I guess this is good news although it also seems consistent with what we know about financial literacy — people are still lacking when it comes to understanding how consumer finance works. That being said, it would be great if we could come up with strategies to improve financial literacy so that people can improve their financial decision-making. I am not yet hopeful, though, that we can.
June 20, 2016 | Permalink | No Comments
June 17, 2016
New Housing and Displacement
The Institute of Governmental Studies at UC Berkeley has issued a research brief, Housing Production, Filtering and Displacement: Untangling the Relationships. It opens,
Debate over the relative importance of subsidized and market-rate housing production in alleviating the current housing crisis continues to preoccupy policymakers, developers, and advocates. This research brief adds to the discussion by providing a nuanced analysis of the relationship between housing production, affordability, and displacement in the San Francisco Bay Area, finding that:
• At the regional level, both market-rate and subsidized housing reduce displacement pressures, but subsidized housing has over double the impact of market-rate units.
• Market-rate production is associated with higher housing cost burden for low-income households, but lower median rents in subsequent decades.
• At the local, block group level in San Francisco, neither market-rate nor subsidized housing production has the protective power they do at the regional scale, likely due to the extreme mismatch between demand and supply.
Although more detailed analysis is needed to clarify the complex relationship between development, affordability, and displacement at the local scale, this research implies the importance of not only increasing production of subsidized and market-rate housing in California’s coastal communities, but also investing in the preservation of housing affordability and stabilizing vulnerable communities. (1)
This brief takes on an important subject — the relationship between new housing and displacement — and concludes,
There is no denying the desperate need for housing in California’s coastal communities and similar housing markets around the U.S. Yet, while places like the Bay Area are suffering from ballooning housing prices that are affecting people at all income levels, the development of market-rate housing may not be the most effective tool to prevent the displacement of low-income residents from their neighborhoods, nor to increase affordability at the neighborhood scale.
Through our analysis, we found that both market-rate and subsidized housing development can reduce displacement pressures, but subsidized housing is twice as effective as market-rate development at the regional level. It is unclear, however, if subsidized housing production can have a protective effect on the neighborhood even for those not fortunate enough to live in the subsidized units themselves.
By looking at data from the region and drilling down to local case studies, we also see that the housing market dynamics and their impact on displacement operate differently at these different scales. Further research and more detailed data would be needed to better understand the mechanisms via which housing production affects neighborhood affordability and displacement pressures. We know that other neighborhood amenities such as parks, schools, and transit have a significant impact on housing demand and neighborhood change and it will take additional research to better untangle the various processes at the local level.
In overheated markets like San Francisco, addressing the displacement crisis will require aggressive preservation strategies in addition to the development of subsidized and market-rate housing, as building alone won’t protect specific vulnerable neighborhoods and households. This does not mean that we should not continue and even accelerate building. However, to help stabilize existing communities we need to look beyond housing development alone to strategies that protect tenants and help them stay in their homes. (10-11, footnote omitted)
The brief struggles with a paradox of housing — how come rents keep going up in neighborhoods with lots of new construction? The answer appears to be that the broad regional demand for housing in a market like the Bay Area or New York City overwhelms the local increase in housing supply. The new housing, then, just acts like a signal of gentrification in the neighborhoods in which it is located.
If I were to criticize this brief, I would say that it muddies the waters a bit as to what we need in hot markets like SF and NYC: first and foremost, far more housing units. In the absence of a major increase in supply, there will be intense market pressure to increase rents or convert units to condominiums. Local governments will have a really hard time overcoming that pressure and may just watch as area median income rises along with rents. New housing may not resolve the problem of large-scale displacement, but it will be hard to address displacement without it. Preservation policies should be pursued as well, but the only long-term solution is a lot more housing.
I would also say that the brief elides over the cost of building subsidized housing when it argues that subsidized housing has twice the impact of market-rate units on displacement. The question remains — at what cost? Subsidized housing is extremely expensive, often costing six figures per unit for new housing construction. The brief does not tackle the question of how many government dollars are needed to stop the displacement of one low-income household.
My bottom line: this brief begins to untangle the relationship between housing production and displacement, but there is more work to be done on this topic.
June 17, 2016 | Permalink | No Comments
