June 15, 2017
Thursday’s Advocacy & Think Tank Roundup
- Chicago is faced with many disparities between higher income and lower income residents. A recent study shows an additional disparity regarding the burden of property taxes on lower income residents. The root of the issue stems from the valuation of property. The county accessor’s office has an imperative role in determining whether lower income residents are able to live in their home or forced into foreclosure.
- Denver is not a city where individuals making two times the amount of the federal minimum wage may find affordable housing. A recent reporter followed the life of a tenant who began to loose her rental after two short months in the home. While she believes her case is unique, the city of Denver reported 8,419 eviction cases in 2016. Denver responded by using an “arm-in-arm” strategy to reduce the possibility of some 16,000 individuals who may be without a home.
- Stearns Lending now offers loans for million dollar homes with less than 10% down. As a result, qualifying first time homebuyers will be able to borrow an amount up to one million dollars. Additionally, if a homebuyer is experienced, he or she may qualify for a loan up to 1.5 million dollars.
June 15, 2017 | Permalink | No Comments
June 14, 2017
High Rents and Land Use Regulation
The Federal Reserve’s Devin Bunten has posted Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation. It is a technical paper about an important subject. It has implications for those who are concerned about the lack of affordable housing in high-growth areas. The abstract reads,
Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco). While new residents would benefit from housing stock growth in cities with highly productive firms, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general-equilibrium model with endogenous regulation. In the model, households choose from locations that vary exogenously by productivity and endogenously according to local externalities of congestion and sharing. Existing residents address these externalities by voting for regulations that limit local housing density. In equilibrium, these regulations bind and house prices compensate for differences across locations. Relative to the planner’s optimum, the decentralized model generates spatial misallocation whereby high-productivity locations are settled at too-low densities. The model admits a straightforward calibration based on observed population density, expenditure shares on consumption and local services, and local incomes. Welfare and output would be 1.4% and 2.1% higher, respectively, under the planner’s allocation. Abolishing zoning regulations entirely would increase GDP by 6%, but lower welfare by 5.9% because of greater congestion.
The important sentence from the abstract is that “Welfare and output would be 1.4% and 2.1% higher, respectively, under the planner’s allocation.” Those are significant effects when we are talking about real people and real places. The introduction provides a bit more context for the study:
Neighborhoods in productive, high-rent regions have very strict controls on housing development and very limited new housing construction. Home to Silicon Valley, the San Francisco Bay Area is the most productive and most expensive metropolitan region in the country, and yet new housing construction has been very slow, especially in contrast to less-productive large cities like Houston, Texas. The evidence suggests that this slow-growth environment results from locally determined regulatory constraints. Existing residents justify these constraints by appealing to the costs of new development, including increased vehicle traffic and other types of congestion, and claim that they see few, if any, of the benefits from new development. However, the effects of local regulation extend beyond the local regulating authorities: regions with highly regulated municipalities experience less-elastic housing supply. (2, footnotes omitted)
The bottom line, as far as I am concerned, is that localities that are attempting to deal with their affordable housing problems have to directly address how they go about their zoning. If the zoning does not support housing construction, then no amount of affordable housing incentives will address the demand for housing in high growth places like NYC and San Francisco.
June 14, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- Individual Liability of Shareholders, Officers, and Directors Under the Interstate Land Sales Act, DiLorenzo
- Chapter 20: Traditional Asset Allocation Securities: Stocks, Bonds, Real Estate, and Cash, Milliken, Nikbakht, and Spieler
- A Revealed Preference Approach to Estimating Strategic Mortgage Default, McCollum, Narayanan, and Pace
- Prudential Policies and Their Impact on Credit in the United States, Calem, Correa, and Lee
June 14, 2017 | Permalink | No Comments
June 13, 2017
How Are First-Time Homebuyers Doing?
Genworth Mortgage Insurance Corporation released a a First-Time Home Market Report. The big news from the report is that first-time homebuyers purchased fifteen percent more single-family homes in 2016 than in 2015. The 2 million homes purchased in 2016 was the most since 2006, before the financial crisis. This is a positive sign for the housing market and for the homeownership rate which has fallen to long-time lows since the financial crisis. The Executive Summary reads,
First-time homebuyers represent an important segment of the housing market, generating significant revenue to real estate agents, homebuilders, and the mortgage finance industry. In this report, we adopt the Department of Housing and Urban Development (HUD) definition of first-time homebuyers as homebuyers who did not own a home in any of the prior three years . . . Compared to repeat homebuyers, first-time homebuyers play a more pivotal role in influencing housing inventory and home prices because they represent the shift of housing demand from rental to owner occupancy. Despite this well-recognized dynamic, there has been limited data available on the first-time homebuyer market, starting with market size. In this report, we estimate the size of the first-time homebuyer market going back to 1994 using a combination of government and mortgage industry data—20.1 million actual first-time homebuyers were identified. This data provides a historical perspective on the first-time homebuyer market as well as important recent trends. (2)
The report’s key findings include,
1. Between 1994 and 2016, first-time homebuyers purchased on average 1.8 million single-family homes each year, accounting for over one in three of all single-family homes sold, and 45 percent of the purchase mortgages originated.
2. First-time homebuyers have led the housing recovery, contributing over 60 percent of the sales growth in the housing market over the past five years and 85 percent of the growth in the past two years. The resurgence of the first-time homebuyer market has contributed to very tight housing supplies and accelerating home prices, especially at the “low” end of the housing market.
3. During the Housing Crisis, the number of single-family homes sold to first-time homebuyers saw a peak to trough decline of 900,000 units (43 percent) – reaching a trough of just 1.2 million units in 2011. Over the last 10 years, the housing market has seen 3 million fewer first-time homebuyers in aggregate compared to the historical average.
4. The first-time homebuyer market stagnated during the historic housing expansion of the 1990s and early 2000s, leading to a decline in first-time homebuyer mix. Instead, it was repeat homebuyers, including second-home buyers and investors, who led the surge in housing activity.
5. The expansion of government lending programs and the implementation of the first-time homebuyer tax credit provided temporary support to first-time homebuyers. Between 2008 and 2010, first-time homebuyers represented 35 percent of all single-family home sales, which is close to its historical average. However, the percentage of single-family home sales to first-time homebuyers declined once the tax credit expired, and stayed below 30 percent for these three years.
6. First-time homebuyers have always demonstrated a greater need for low down payment mortgage products. Between 1994 and 2016, 73 percent of first-time homebuyers chose such products compared to 30-50 percent for repeat homebuyers. Mortgage products with a lower down payment will likely have a higher first-time homebuyer mix.
7. Private mortgage insurance and FHA (government-backed mortgage insurance) are the two leading products for first-time homebuyers and have together accounted for close to 1 million first-time homebuyers a year since 1994. They have played a key role in reviving the first-time homebuyer market in the current recovery, accounting for approximately 80 percent of its growth in the past two years.
8. First-time homebuyers purchased 2 million single-family homes in 2016, 15 percent more than 2015 – and the most since 2006. During the first quarter of 2017, there were more first-time homebuyers than any other year since 2005. A total of 424,000 single-family homes were sold to first-time homebuyers, up 11 percent from a year ago, and accounting for 38 percent of all single-family home sales. (3)
June 13, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- The Consumer Financial Protection Bureau (CFPB) took action against Fay Servicing for their lack of protection of homeowners during foreclosing procedures. The CFPB found that Fay Servicing did not provide borrowers with the necessary protection legally mandated. Additionally, the servicing company did not suspend proceedings when homeowners actively participated in programs to save their homes.
- National Low Income Housing Coalition released a report analyzing federal minimum wages and its affect on affordable rental housing. Roughly 60% of states “have minimum wages higher than the federal minimum wage”. In order for families to afford to live in “affordable housing,” they must make 2.9 more than the federal mandated minimum wage. Currently, Maryland, California, and Hawaii have the highest distance between income and a two bedroom affordable rental.
June 13, 2017 | Permalink | No Comments
June 12, 2017
Poverty in NYC
NYU’s Furman Center has released its annual State of New York City’s Housing and Neighborhoods along with a focus on Poverty in New York City. The State of the City report is always of great value but each year’s focus is where we get to see the City in a new light. This year is no different:
In New York City in recent years, rents have risen much faster than incomes. The pressures of rising housing costs may be greatest on those with the fewest resources—people living in poverty. New York City has a larger number of people living in poverty today than it has since at least 1970. This sparks a range of questions about the experience of poverty in New York City that we address in this year’s State of New York City’s Housing and Neighborhoods Focus. Who in New York City is poor today? Where do they live? What are the characteristics of the neighborhoods where poor New Yorkers live? Are poor New Yorkers more likely to be living in areas of concentrated poverty than they were in the past? How, if at all, do the answers to each of these questions differ by the race, ethnicity, and other characteristics of poor households?
Though the share of New Yorkers living in poverty has been relatively constant over the past few decades, there was a drop at the end of the last decade and then an increase in 2011–2015. Poverty concentration—the extent to which poor New Yorkers are living in neighborhoods with other poor New Yorkers—followed a similar trend, dropping in 2006–2010 and increasing again since then. The neighborhood of the typical poor New Yorker varies substantially from that of the typical non-poor New Yorker, but those disparities are largely experienced by black and Hispanic New Yorkers living in poverty. The typical poor Asian and white New Yorkers live in neighborhoods that do better on the measures we examine than the neighborhoods of the typical non-poor New Yorker. We also find that neighborhood conditions vary significantly based on the level of poverty in a neighborhood. Higher poverty neighborhoods have higher violent crime rates, poorer performing schools, and fewer adults who are college educated or working. And, poor New Yorkers are not all equally likely to live in these neighborhoods. Poor black and Hispanic New Yorkers are much more likely to live in higher poverty neighborhoods than poor white and Asian New Yorkers. Children make up a higher share of the population in higher poverty neighborhoods than adults or seniors. (1, footnotes omitted)
Policymakers should have a lot to chew over in this report. Let’s hope they give it a read.
June 12, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- An Ohio attorney received a 14 month sentence on Friday, June 9, 2017, for his role in a 70 million dollar Ponzi scheme regarding land trust. This attorney assisted a husband and wife in fraudulent land activities. Similarly, Steven Scudder, was sentenced to three years supervised release for his use of his position as an attorney to “facilitate the Aposteloses’ fraudulent investment scheme.”
- A Nashville law firm landed itself in a Florida federal court for its alleged fraudulent practices with timeshare owners. The plaintiffs claimed Castle Law Group PC “masterminded a scheme to solicit timeshare owners using false and misleading advertising.”
- National Lloyd’s Insurance Co. successfully convinced an appellate court to overturn the lower court’s decision to compel “discovery of its attorney’s fees information in litigation with property owners.” The property owners alleged the insurer did not pay the full amount of claims which led to litigation.
June 12, 2017 | Permalink | No Comments
