Tag Archives: economic crisis

2016 State of Housing report: not so good

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The State of the Nation’s Housing 2016 was released last week and there are a number of unfortunate historic points highlighted in the executive summary:

But at 1.1. million units, new home construction was still running near historic lows last year. A key factor holding back housing starts is the sustained falloff in household growth…

The US homeownership rate has tumbled to its lowest level in nearly a half-century. The decade-long declines are especially large among the age groups in the prime first-time homebuying years…

Just as exits from homeownership have been high, transitions to owning have been low. Tight mortgage credit is one explanation…And given that the homeownership rate tends to move in tandem with incomes, the 18 percent drop in real incomes among 25-34 year olds and the 9 percent decline among 35-44 year olds between 2000 and 2014 no doubt played a part as well…

On the renter side, the number of cost-burdened households rose by 3.6 million from 2008 to 2014, to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50 percent of income for housing) jumped by 2.1 million to a record 11.4 million…While nearly universal among lowest-income households, cost burdens are rapidly spreading among moderate-income households as well, especially in higher cost coastal markets.

The conclusion suggests stability – homeownership should stabilize with increased household formation – as the effects of the housing bubble continue to fade. However, the glory years of housing seem to be far off as housing costs plague many Americans and the housing industry concentrates on higher end units.

As the economic crisis slowly fades into history, the question remains: is American housing transformed for decades (lower rates of homeownership, more high-cost renting, fewer housing starts)?

A significant minority of Chicago area residents can’t find affordable housing

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A new report suggests many Chicago area residents – poor and wealthier – have difficulty finding affording housing:

To identify “distressed homeowners and renters,” researchers used a housing rule of thumb that requires affordable housing to cost no more than 30 percent of a household’s gross income. In Chicago, 48 percent of people said they were devoting more than 30 percent of their income to rent or a mortgage. In the suburbs, 40 percent were stretching beyond the manageable 30 percent limit.

According to the research, 11 percent of households in Chicago had cut back on healthy food, and 12 percent had made cuts in health care to afford housing. Another 11 percent moved to less safe areas.

While the problem of finding affordable housing is most acute among people ages 18 to 34, African-Americans and households with incomes under $40,000, 49 percent of those in households with incomes over $75,000 said “it’s challenging to find affordable housing in my area.” Sixty-six percent of people with incomes under $40,000 noted the challenge…

In the Chicago area, 87 percent of adults said having stable housing that is affordable is a very important part of having a secure middle-class lifestyle, while 67 percent said it’s harder to afford stable housing than for previous generations.

Housing is crucial for many other areas in life as it influences daily well-being (do you feel safe?), schools that kids go to, amenities (local municipalities, recreation, retail, etc.) available nearby, what kind of neighbors you will interact with, commuting times, and more. So, if you don’t have the resources to live in a nicer community or have to stretch yourself, that will have consequences.

Is it time to reconsider the 30% rule? Of course, if you spend more than 30% on housing then you have to cut back elsewhere. But, given the housing bubble of the last decade and perhaps a new normal of higher rents and less new cheaper housing, perhaps Americans may have to devote more to housing in the future?

Black homeowners not seeing the same rebound in home values

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As if residential segregation and disparities in homeownership (and wealth) weren’t enough, black homeowners haven’t benefited as much from the housing recovery:

The communities in South DeKalb are almost entirely African American, and they reflect a housing disparity that emerges across the Atlanta metropolitan area and the nation. According to a new Washington Post analysis, the higher a Zip code’s share of black residents in the Atlanta region, the worse its housing values have fared over the past turbulent housing cycle.

Nationwide, home values in predominantly African American neighborhoods have been the least likely to recover, according to the analysis of home data from Black Knight Financial Services. Across the 300 largest U.S. metropolitan areas, homes in 4 out of 10 Zip codes where blacks are the largest population group are worth less than they were in 2004. That’s twice the rate for mostly white Zip codes across the country. Across metropolitan Atlanta, nearly 9 in 10 largely black Zip codes still have home values below that point 12 years ago.

And in South DeKalb, the collapse has been even worse. In some Zip codes, home values are still 25 percent below what they were then. Families here, who’ve lost their wealth and had their life plans scrambled, see neighborhoods in the very same county — mostly white neighborhoods — thriving…

These disparities, though, are not simply about income, about higher poverty levels among blacks, or lower-quality homes where they live, according to economists who have studied the region. The disparities exist in places, like neighborhoods in South DeKalb County, where black families make six-figure incomes.

Race strikes again in America. While the issues may not be the same as past actions such as official redlining or blockbusting or restrictive covenants, even in wealthier communities – ones like these that tend to look like the white suburban dream of a big house in a nice community – race continues to affect home and property.

This also reminds me of the book Crisis Cities which I had my urban sociology class read for the first time this past sentence. The one sentence summary: government and private sector actions after major urban crises like 9/11 and Hurricane Katrina tend to privilege the already wealthy and do little to help the poorer residents of major cities. Similarly, poorer and minority residents were hurt disproportionately by the economic crisis (through means like subprime loans – another quote from the article: “Nationwide, black families earning around $230,000 a year, according to research by sociologist Jacob Fa­ber, were more likely at the height of the bubble in 2006 to be given a subprime loan than white families making about $32,000”) and then don’t share as much in the recovery. We need urban and housing policies that at least help everyone, if not provide more for those who need more help.

“Housing Bust Lingers for Generation X”

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The Wall Street Journal discusses how Generation X’s ability to own a home was significantly affected by the housing bubble:

The data show an enormous swing in the fortunes of people born between 1965 and 1984, the group defined by the Harvard Joint Center for Housing Studies as Generation X.

Compared with previous generations, Generation X went from the most successful in terms of homeownership rates in 2004 to the least successful by 2015, according to the data, which date to the early 1980s.

The culprit: a historic bull market for housing, fueled in part by easy-to-get mortgages, that encouraged record levels of home buying until the financial system cracked and the housing market collapsed. Earlier generations such as baby boomers, who entered the market before the frenzy of the early 2000s, have fared better.

Wrong place, wrong time? The effects of this could be long lasting:

  1. Less wealth in the long run since owning a home is one of the biggest investments Americans make.
  2. What does this mean for retirement, both for the money that could be gained in selling a home and the need for different housing options as people age?
  3. With the assumptions Americans make about community involvement and homeownership (as compared to renting), does this mean a whole generation is less involved in community life?
  4. Will economic changes like this affect future decision making both for Generation X and their children who saw what happened?

In other words, we won’t know how important this change is for quite a while.

Housing flipping now above 2005 levels

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RealtyTrac finds that house flipping levels have increased in recent years:

The report by RealtyTrac found that home flipping in 12 active metropolitan areas last year was above a peak set in 2005, just two years before the U.S. mortgage market started to collapse, leading to a banking crisis and the Great Recession.

Profits generated by home flipping also hit a 10-year high, with home flippers netting an average $55,000 per sale before renovation and transaction costs. Profits topped $100,000 in expensive markets such as New York and Los Angeles…

There were also indications smaller investors were starting to pile in on the action. The number of home flippers rose to levels not seen since 2007, while the number of home flips per individual investor fell at the same time.

“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate, who was quoted in the report.

I blame HGTV. Seriously though, hasn’t there been a shift in the last decade or so to seeing house flipping as a more normal business that many people could get into? I hear radio ads regularly in the Chicago area for house flipping seminars where supposedly anyone can show up and learn the secrets. On one hand, you have professionals and firms that do this on a mass scale but you also have an increase in the number of flippers as people take on these projects to make some extra money or start a new business.

If this is pushing us toward another burst housing bubble, is there any way to reign in the flippers? Could local governments institute more regulations that would slow this down?

Recovery best in wealthiest zip codes

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A new analysis looks at the recovery of the US economy by zip codes and finds that the wealthiest areas have rebounded the most:

The report found that for the bottom fifth of U.S. zip codes—which the researchers term “distressed”—the medium income only reaches 68 percent of the state-wide median and 27 percent of adults live in poverty. These communities saw employment decline by 6.7 percent during the recovery. Not the recession—the recovery. In the nation’s median and prosperous zip codes, the situation is much brighter. Employment in median zip codes rose by 2.3 percent, while in prosperous communities—the top fifth of U.S. zip codes—employment rose by an incredible 17.4 percent.

EIG’s analysis supports the notion that in the U.S. economic gains continue to be captured by those at the top. “The data outlines two different Americas from an economic standpoint,” said Steve Glickman, the co-founder and executive director of EIG. “The communities taking advantage of the knowledge economy are booming, but the areas where the industrial economy has traditionally held firmest have really suffered. These trends predate the Great Recession, but the recovery has continued to accelerate the fortunes of the most-prosperous areas and the downturn of the most distressed.”

Another piece of evidence to add to plenty of existing material: where people live has a large effect on their lives. And if the United States has persistent residential segregation – particularly by race but also by social class – then these differences by geography will continue to be pertinent.

CNBC: owning a home may be “the new luxury item”

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CNBC suggests the dream of owning a home is becoming less attainable:

Almost half of those people who don’t own a home said their financial situation is standing in the way, according to a report by Bankrate.com released Tuesday. Additionally, 29 percent said they can’t afford a down payment and 16 percent said their credit isn’t good enough to qualify for a mortgage…

“A lot of people could be feeling traumatized by what happened to the housing market and are counting themselves out,” she said…

These days, first-time homebuyers, who are primarily in their 30s, are spending a bigger chunk of their incomes to buy their first house — coughing up about 2.6 times their annual pay; in the 1970s, first-time homebuyers purchased homes that cost only about 1.7 times their yearly salary, according to Zillow.

Tighter lending standards and hefty down payments have further deterred some buyers.

Economic conditions and reasoning can go a long ways to determining who can access parts of the American Dream and when they may do so in life. This reminds me of other analyses I’ve seen in recent years suggesting the delayed age for marriage as well as a decline in marriage is also tied to economics: people want to be more financially secure before they marry. Similarly, buying a home is now being put off – not because Americans don’t want it but because they just aren’t set and the conditions have imposed particular restrictions.

More Chicago suburbs hiring staff

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Perhaps this is another sign of a more positive economy (and more tax dollars): some suburban governments are hiring again.

According to a Daily Herald analysis of 61 suburbs, 31 of them added the equivalent of 139 full-time jobs during the fiscal year that ended April 30, 2015, for most suburbs and Dec. 31, 2014, for others.

But 16 suburbs eliminated the equivalent of 46 full-time jobs and 14 towns held the line on the head count from the previous year, the analysis of the suburbs’ most recent audits show…

Still, the vast majority of towns are operating with much smaller staffs than just a few years ago. At its peak seven years ago, employment by the 61 towns was nearly 10 percent higher with the equivalent of 13,251 full-time jobs, compared to a low point of 11,977 full-time equivalent positions two years ago, according to the analysis…

According to the analysis of the audits, the 61 towns in suburban Cook, DuPage, Kane, Lake, McHenry and Will counties first saw significant job reductions in 2010, when they reduced their workforces by 3.8 percent.

While this analysis is interesting, more background might be helpful. Suburban governments today have to balance efficiency (meaning keeping tax increases small or cutting the budget) and quality of life (the suburban life that many of the residents who moved to the community want to continue and enhance). This is not easy to do; residents tend to want more for their money and many might be convinced that government can always cut waste (or at least cut the money they don’t personally care about or benefit from). But, at some point, employees are needed.

This article suggests that a number of the new hires in suburban communities are part-time employees to limit the benefits costs. I’d be interested to see data on whether having more part-time employees in local government leads to better service and community outcomes.

As recession fades, Americans again move South and West

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New Census data shows the move of Americans to the Sun Belt is picking up steam:

Census population estimates show that the 16 states and the District of Columbia that comprise the South saw an increase of almost 1.4 million people between 2014 and 2015. The 13 states in the West grew by about 866,000 people.

The gains represent the largest annual growth in population of the decade for both regions and signal that the multi-decade migration to the Sun Belt has resumed after being interrupted by the Great Recession of 2007-09 and the economic sluggishness and anxiety that followed.

In comparison, population growth in the Northeast and the Midwest — including what’s known as the Snow Belt — remained sluggish, growing by about 258,000 residents combined…

A search for jobs and more affordable housing were behind two-thirds of the long-distance moves made between 2014 and 2015, according to a separate census report. Family reasons, such as getting married or rejoining relatives, accounted for another quarter of households moving.

People would generally say that mobility like this is good: Americans feel more confident in moving (they can sell their house, find a new job) and chase new opportunities (we’re told a good market requires workers who are willing to go where the jobs are located). At the same time, the states that are losing population could suffer some negative consequences ranging from a loss of status (both perceived and real – the article mentions the shift in House seats) to declining tax bases.

Even as this shift to the Sun Belt continues, it would be interesting to take a long-term perspective: how has this changed the United States as a whole? While Los Angeles has certainly risen to the top (and eclipsed Chicago as the Second City), the South is still often treated as distinct rather than the new normal.

Recession decimated construction workforce

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Here is another sign the construction industry has not fully recovered from the economic crisis: the number of construction workers is still low.

The new-construction housing market is slowly recovering from the turmoil of the recessionary years, but builders haven’t been able to pick up where they left off. More than 2 million skilled labor jobs were lost to the economy, and many of those workers are gone forever…

Nearly 30 percent of the construction workforce disappeared during the Great Recession, reports FMI Corp., a Raleigh, N.C., provider of management consulting, research and investment banking to the construction industry. Among its ranks are plumbers, electricians, roofers, bricklayers and carpenters.

The shortage seems to be worsening. According to FMI’s 2015 “Talent Development in the Construction Industry” survey, 86 percent of respondents reported shortages of skilled labor. That’s up from the 2013 survey, in which 53 percent of respondents reported such shortages.

It may take a long time before the housing industry approaches where it was in the early to mid-2000s. In the meantime, those workers have to do something and/or go elsewhere. Even with all the political talk about helping workers, I don’t remember anyone suggesting plans for helping construction workers in the same way that politicians have discussed manufacturing workers.

Additionally, I wonder what it takes to ramp up with a lot of new workers if the housing industry starts booming again. Businesses today tend to shed workers when times are bad, add when the economy picks up, and disregard training and upstart costs. However, it is not always simple to just hire large numbers of laborers.