Tag Archives: economic crisis

March existing home sales: slowdown for cheaper homes, increase for more expensive homes

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The March existing housing reports showed a slowdown in one part of the housing market and a rise at the other end:

Sales of homes under $100,000 fell nearly 18% from March 2013 and those in the $100,000-$250,000 range fell about 10%. But sales of homes over $1 million rose almost 8%, according to supplemental data on the NAR website. The median existing-home price — half were below the median and half above — was $198,500.

The West is seeing the sharpest plunges in sales of lower-priced homes and has been for some time. Compared with a year earlier, March sales of under-$100,000 homes fell 45% in the West, 18% in the Midwest, 16% in the South and only 3% in the Northeast.

What’s behind this trend? Inventories at the lower end of the market are tighter than a couple of years ago as the number of bargain-priced foreclosures and other distressed properties for sale has dwindled. Many of those homes were snapped up by investors, who bid up prices, accelerating that segment’s rebound from the housing bust lows.

This is a continuation of a bifurcated housing market after the economic crisis: people with financial means are able to buy and sell while those at the bottom end with fewer resources and less available inventory can’t do as much. This continued sluggish bottom of the market affects a lot of sectors including employment (whether people have the mobility to chase available jobs), personal finances (plenty of people stuck in homes in which they owe a lot of debt or at the least can’t make any money from), and economic activity and jobs (in construction, real estate, banking, etc.).

Argument: we’ve sacrificed everything for McMansions

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Critics of McMansions are not hard to find but Thomas Frank takes the argument further: McMansions are behind a whole host of issues including sprawl and inequality.

Of course there was something different this time around. In the 2008 collapse, the real-estate bust wasn’t the result of some larger economic trend but the cause of it. Although we are accustomed to blaming it all on subprime loans, about half of the disaster was attributable to the less-well-known fiasco in Alt-A instruments which fed the McMansion market, the “liar’s loans” which were securitized and sold off stamped with a big Triple-A. The worst recession of our lifetimes, in other words, was in large part the result of our superiors’ longing to get themselves a piece of the grandiose.

That astounding reversal of the usual chain of cause and effect changed the way I thought about the McMansion. I once believed it would be amusing to track stylistic change in the tract-mansion form—how, say, the fake French simplicity of Newt Gingrich’s 1987 McMansion gave way to the complex multigabled fakery of Michele Bachmann’s 2007 McMansion, with maybe a stop in between to contemplate Ricky Bobby’s McMansion in “Talladega Nights.”

But what I discovered is that the form doesn’t really change. Yes, the houses get bigger every year, gables and gazebos come and go, but what is really striking about the McMansion is its vapid consistency as the decades pass…

This is not some absurdity at the fringe of our way of life. This is civilization’s very center, the only thing that really makes sense in “clusterfuck nation,” the tawdry telos at which all our economic policies aim. Everything we do seems designed to make this thing possible. Cities must sprawl to accommodate its bulk, eight-lane roads must be constructed, gasoline must be kept cheap, coal must be hauled in from Wyoming on mile-long trains. Middle-class taxes must be higher to make up for the deductions given to McMansion owners, lending standards must be diluted so more suckers can purchase them, banks must be propped up, bonuses must go out, stock prices must ascend. Every one of us must work ever longer hours so that this millionaire’s folly can remain viable, can be sold successfully to the next one on the list. This stupendous, staring banality is the final outcome for which we have sacrificed everything else.

This is a strong statement: we created and generally buy into a system whose goal is to grant a privileged few the ability to live in private McMansions in nice neighborhoods. The fulfillment of the American Dream at the turn of the 21st century involves living in a McMansion. It is not just about suburbs, 0wning a car, buying cheap goods at Walmart, and sending your kids to nice schools; it is about having the glitzy, architecturally-dubious but spacious home.

What I don’t see in Frank’s piece is how exactly the dots connect. The number of McMansions are still relatively limited due to their cost. Not all gated communities have McMansions. Not all suburbs are edge cities or vacuous tract neighborhoods like the ones highlighted in Suburban Nation. I’d like to see the data where half of the housing bubble of the late 2000s was due to loans for McMansions. In other words, this may be a populist argument today given the status of McMansions but the true story is likely more complicated.

Northern Virginia residents unhappy about paying higher taxes and getting fewer local services

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Echoing residents of many American communities, Northern Virginia residents don’t like the idea of paying increasing local taxes and not getting higher levels of local services:

At packed public meetings and in angry phone calls, local officials say, the same message is echoing from all sides: We’re fed up.

“It’s very frustrating, right now, to try to manage expectations,” said Sharon Bulova, chairman of the Board of Supervisors in Fairfax County, which, like neighboring Loudoun County, is locked in a battle over school funding that could lead to a higher tax rate — and even larger monthly payments…

Cuts to libraries, parks, schools and bus routes since the 2008 recession have negatively affected the quality of life of some residents in this part of Virginia, where top schools and amenities have long been a magnet for families. When much-needed infrastructure projects were launched, officials often paid for them by creating special tax districts and other charges that they passed on to increasingly resentful residents and businesses.

In Fairfax, sewer rates have nearly doubled since 2008, to $6.62 per 1,000 gallons of water, while real estate property taxes have climbed nearly 20 cents during the same period to a current level of $1.085 per $100 of assessed value. That means a house worth $500,000 in 2008 would have had a property tax bill of $4,450, and a house of the same value today would have a bill of $5,425.

Fairfax officials recently advertised a new residential property tax rate cap of $1.105 per $100 of assessed value, which will allow the county to raise the rate by up to two cents to fill a $64?million funding gap projected by school district officials. There is also a push to raise the tax rate in Loudoun, to bridge a $40?million school funding shortfall.

When there is plenty of suburban growth, new money is rolling in from developer fees and new taxpayers. But, in prolonged economic downturns, it is difficult to generate the same levels of money.

I wonder if either of these arguments would work with suburban taxpayers:

1. The reduction in service levels is probably quite limited.

2. These are still some of the wealthiest counties in the United States.

It is not as if these relatively wealthy counties will suddenly become like Third World countries. However, neither of these might matter as residents moved there in part to benefit from these local services.

Note: this is not just a problem in northern Virginia. For example, New Jersey leads the country in property taxes and the bill keeps growing in a number of New Jersey communities.

Americans had biggest new houses ever in 2013

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The National Association of Home Builders suggests Census data for 2013 shows Americans had the biggest new homes ever at over 2,600 square feet:

Preliminary data provided to NAHB by the Census Bureau on the characteristics of homes started in 2013 show the trend toward larger homes continued unabated last year, as did the share of new homes with 4+ bedrooms, 3+ full baths, 2-stories, or 3-car garages.  The average size of new homes started in 2013 was 2,679 square feet, about 150 square feet larger than in 2012 and the fourth consecutive annual increase since bottoming out at 2,362 square feet in 2009.

This is amazing. Housing, particularly bigger homes and McMansions, was fingered as a key reason the economy crashed in the late 2000s as too many residents and banks conspired to produce untenable mortgages. The housing market has struggled since. Yet, several years later, Americans now have even bigger than ever new houses. Why?

To get an answer, just take a look at WHO is buying new homes?  The typical new home buyer in recent years has been someone with strong credit scores and high levels of income.  To the first point, the graph below shows how the average credit rating of all US consumers has remained rather flat over the last few years (blue line), while the average credit rating of mortgage borrowers (red line) took a dramatic jump after 2007.  By 2013, the gap between the two measures was 58 points, compared to 33 points in the early 2000s.

To the second point, the graph below shows the rising trend in new home buyers’ income in recent years.  In 2005, the median income of new home buyers was $91,768.  By 2011, it had increased by more than 17% to $107,607.  It is not too surprising, therefore, to see home size and features continuing to trend upward, given that those buying new homes are precisely the kind of buyers who generally purchase large, feature-loaded homes.

In other words, the bifurcated housing market continues. Those with resources, more income and higher credit scores, can take advantage of these new homes builders are constructing because there is more profit to be made. In the meantime, the construction of smaller homes, those that might be more affordable or reasonable given the moral outrage over big homes in the 2000s, continues to lag behind. If the housing market is going, it is going on the strength of more expensive homes.

We need another piece of data to make this post from the NAHB complete: how do the housing starts in 2013 compare to those for each year since the early 2000s?

Parody: Nazi leader loses the equity in his McMansion as the housing bubble bursts

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One of the YouTube parodies of the 2004 German movie Downfall features Hitler lamenting the effect of the declining housing market on his new McMansion. Here is a small part of Hitler’s complaints:

Real estate only goes up! My broker told me it only goes up! I cannot believe I’m going to have to sell my house before I can flip it for a profit. That bimbo said I could always refinance before the rates went up! I’m going to have to sell assets to raise cash. I’ll love my vintage Camaro SS! I got that car with my home equity loan along with my flatscreen TV and a bunch of other toys!

Question from military official: But you didn’t put any money down, how can you complain?

Response: Everyone was doing it! I needed a nice car and a new television!

Question from the same official: What about all the people who lived within their means?

Response: Screw them. I invested in that house to live the life of luxury I am entitled to! There was equity in the house! I thought that renters and conservative homeowners were suckers for not jumping on the credit gravy-train. I was going to flip it and my investment would double!

And on it goes. Some interesting commentary on the housing bubble. Of course, the housing bubble didn’t just affect McMansion owners but they are often blamed for inflating the market with big houses and big mortgages that they couldn’t afford. Putting these words in the mouth of the most recognized evil person in recent human memory only serves to drive home the argument…

Argument: trends suggest younger Americans won’t experience the dream of homeownership

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Dr. Housing Bubble argues young Americans may not be able to achieve the American ideal of owning a home:

Many young Americans will be accustomed to paying their student debt and rents on a monthly basis while these income streams go into banks, many that own their property.  Not a bad situation if the market wasn’t rigged by banks where preference is given to large money and low rates matter little when the Fed has set a fuse to Wall Street to buy out large portions of real estate in the market.  Of course many will try to pretend that this is some sort of free market.  The housing market is fully subsidized and juiced to the gills and while this is going on, a younger generation gets older and their dreams of homeownership move further and further away.  At least they can bunk with mom and dad and enjoy stories of those beautiful golden real estate handcuffs.

There are several interesting assumptions going on here:

1. Homeownership is the better long-term option for the country and for individuals over renting or living with family. This is tied to ideas about independence and achieving the American Dream as opposed to renters or those who live with family who can’t be self-reliant and don’t care as much about their property.

2. Younger Americans should aspire to homeownership. They may not as much in the future as owning home creates a significant financial obligation, may prevent the mobility needed to chase jobs or other opportunities, and may not be as exciting as other consumer options (new technologies, entertainment/cultural/travel options, etc.).

3. The difficult economy where a majority of Americans can’t make significant financial progress will necessarily continue and limit the number of people who can buy homes (and the number of new homes that are built). We’ll have to wait and see how this turns out. If anything, this all reinforces how big the housing bubble was in the mid-2000s.

American economic recovery varys widely by county

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A recent analysis of county-level data regarding recovering from the economic crisis shows winners and losers:

About half of the nation’s 3,069 county economies are still short of their prerecession economic output, reflecting the uneven economic recovery, according to a new report from the National Association of Counties…

The report, released Monday, examined four economic indicators: GDP, total number of jobs, unemployment rates and home prices. It found wide variations.

Almost 400 counties saw no decline in GDP from their prerecession levels. Large counties were hit hard by the recession, but have recovered relatively strongly.

The roughly 800 counties boasting prerecession employment levels by 2013 are mostly in the Midwest and South. And just 54 had achieved their prerecession level of unemployment last year, the report said.

In other words, the overall figures suggest some counties have done well while others continue to struggle. Just curious: what can be done at the county level in many of these places? Counties are one level of local government but they are more influential in some places that others.

 

“They get McMansions, we get McJobs”

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One columnist suggests McMansions are for the few thriving in the current economy while everyone else gets low-paying jobs:

The Great Recession ended in mid-2009, but for middle class Americans the economic “recovery” never began.

Times will get harder in 2014 for thousands of families in Bucks and Montgomery counties. As reported in this newspaper, long-term unemployment benefits ceased on Saturday for 73,000 Pennsylvanians, about 6,000 of them in the two counties. These people and their dependents will have the penultimate hope ’n change experience – no job, few prospects for full-time work and no unemployment benefits.

The economic news for the majority of Americans has not been good in recent years. However, I’m intrigued by the argument about who McMansions are for. The suggestion here is that McMansions are only for the wealthy, those who have still done well in the economic crisis. Yet, the typical usage of the word McMansion implies that they are big houses for the masses, not just the wealthy. At the economic peak in the early 2000s, the idea of a McMansion meant that a middle-class American could purchase a large and ostentatious home.

At play here is the relative status of McMansion owners. Are they the nouveau riche who are trying to conspicuously present their wealth? Are they the top 10% of the population? The truly wealthy don’t need McMansions – they have mansions – but in times of more scarcity, McMansions might not be for the masses. Also, the article seems to present its criticism of McMansions from those of lower economic and social standing whereas some of the critique of McMansions in recent decades has come from the top in suggesting the owners aren’t really wealthy or don’t have much architectural taste.

Big companies buying up hundreds of Chicago area homes

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In a sign of the post-Great Recession real estate market, big firms are buying up Chicago area real estate:

The Chicago market is vast enough that even an invasion of this size won’t change home prices overnight. But the frenzied activity is a clear sign that professional investors believe two important trends are ripe for opportunity: housing values are recovering, and many Americans have given up on the dream of homeownership and will become renters…

Three years ago in an opinion piece for the Tribune, Matthew Desmond, then a sociology department fellow at the University of Wisconsin, voiced worries about what he predicted would be a concentration of housing stock among a few owners, causing big landlords to get bigger and smaller landlords to fall by the wayside. He called it the “Wal-Martization of urban housing.”

On one hand, this represents a change in the Chicago market as firms look to buy homes, rent them, and possibly make more money down the road when prices rise again. On the other hand, the percent of units these bigger firms are buying is not huge yet.

Desmond’s comments are interesting. Why shouldn’t real estate and housing operate in a market space where corporations can get involved? We have few problems with this in retail so what is the problem in housing? Desmond and others might argue that housing is a more basic need – though American residents do not have an explicit right to it. Also, there is a long-standing ideology in the United States that residents should have choices among places to live and homeownership, determining the fate of one’s own property, is the end goal rather than having to be subservient to a corporate landlord.