Top 10 cities where housing markets are cooling the fastest in 2022
Seattle, WA
Las Vegas, NV
San Jose, CA
San Diego, CA
Sacramento, CA and Denver, CO (tie)
—
Phoenix, AZ
Oakland, CA
North Port, FL
Tacoma, WA
This raises multiple questions:
While housing values are going down, how long before they stabilize and head back up? After all, these are places with higher demand and rising prices over time. At least, that is what a lot of homeowners are planning on.
How are residents of these places feeling? American property owners like it when property values are going up, even if they are not ready to sell. When prices go down, I assume they are not feeling as good. (This could be true even if housing values today are higher than they were not long ago; the immediate feeling of loss is strong.)
Is a local market with higher highs and lower lows in housing prices one where more growth is happening? Looking at the list above, it would appear these are fairly popular places with a steady demand for housing. The alternative to the yo-yoing in the housing market is a market where prices do not rise much or lose much. Such markets also exist in the United States, but they are less desirable.
How might this be interpreted? Here is what came right before the data:
Although the rules have been relaxed and tightened over the years, the secondary mortgage market in the U.S. requires condo buildings to maintain a certain level of owner-occupied units in order to fund mortgages for buyers purchasing in those properties. If buyers can’t get mortgages easily for a condo unit, they will look elsewhere. That can depress prices for the entire property. (Over the years, the percentage of allowable units that may be rented has fluctuated from 50 to 80%. Fannie Mae’s current rate of allowed rentals in a condo building is 50%. )
Also, renters may be wonderful people but they don’t always make great neighbors. They may not take care of the overall property as carefully as a unit owner would, and the length of their tenancy tends to be shorter than the amount of time a unit owner lives in a home they own.
Are renters less desirable because too many rental units can affect property values and renters may not care for the residence and they do not stay as long? Having seen such arguments in my research on suburban settings, there are both perceptions about renters and systems regarding properties that contribute to the overall preference for homeownership. Renting may be necessary for some and/or for a time and/or in particular markets, but Americans overall privilege owners who in contrast to the sentiments above presumably stay longer, care more for their properties, and promote higher property values.
Why do so many homeowners care about protecting their property values? While recently reading about social class and Hollywood, I found this observation:
That passive income, which is the real American dream, is no longer something that the actual artists—not just actors but writers and directors and everyone else who ever made a dime off of residuals—involved in the entertainment business get to enjoy.
The context here involves the actors and others involved with long-popular television shows that could reap the financial benefits for decades.
Isn’t this passive income also what American homeowners in the early 21st century expect when they purchase a residence? Scholars have noted the shift to Americans viewing their homes as a positive investment. Instead of needing a home for shelter and enjoying that residence while there, homes and residences are now supposed to make money for their owners. In this arrangement, property owners are not expected to be completely passive; they should maintain their property or possibly even improve it. In return, their property values go up and they can cash out in the future. A loss is very undesirable and even staying roughly at the same value over time is not much help given expenses. A nice profit requires a decent uptick in value. Such a profit can help owners climb the economic ladder, have a comfortable retirement, and pass along wealth and advantages to children and family.
This can help explain why so many homeowners fight against perceived threats to their property values. People want to change the use of land or alter the neighborhood in ways that might limit the rise of property values. It is a threat to passive income. (Whether those changes to the neighborhood and/or community actually lower property values is another story.)
Put together the ideas in the previous two posts – homes involve emotionally satisfying arcs and they pay off financially in the end – and add decades-long American ideology and houses are symbols of success and making it. The house, typically a single-family home on HGTV, is a visible, tangible monument that the owner is successful. Residents and show hosts talk about how the house symbolizes all of the struggle and work of a family. They talk about passing down a legacy to kids. They usually do not come out an say it but the home and its exterior provide a positive impression to neighbors and those passing by about the status of the residents.
Homeownership is celebrated on HGTV. An attractive house that meets the needs of the residents and broadcasts a message of success to others is the ideal. Almost no one wants to rent or live long-term with family or friends. Almost everyone is trying to move up to a better and/or more attractive home. The goal is to acquire one’s own home which provides well-being and financial security.
Ultimately, HGTV helps perpetuate homeownership and its link with the American Dream in the way it presents houses and what they are for. The people on the network find success in acquiring and improving homes and almost nothing else is discussed. Kids watching HGTV see that people need to acquire and/or improve a house to be a successful adult.
In addition to the upbeat emotions on HGTV, the network relentlessly suggests houses are worth the financial investment. Numerous shows discuss how much money is involved, whether that is in the purchase price or the profit or equity made in repairing a home or the costs to particular changes. These are often not small sums; budgets are usually in the tens of thousands or more and few characters discuss how they have such money to spend.
But, the big sums of money are worth it in the end because homes are an important investment. Sure, they are to be enjoyed – and the reveals at the end of many HGTV episodes are full of positivity – but the money may be even more important. Everyone has spent a lot of money on these homes and they are worth it because they will be worth even more in the future.
“Bill Gates is buying up the majority of American farmland and BlackRock is buying the majority of single family houses but I’m supposed to believe the biggest threat to us is Elon Musk buying Twitter?,” read a Twitter post that was liked or shared more than 250,000 times.
But Gates doesn’t own more than 50% of U.S. farmland, according to The Associated Press. Even with recent purchases, he owns less than 1% of the nation’s farmland.
Gates, with 269,000 acres, is considered the largest private owner of farmland in the country. But his share is a small percentage of the nearly 900 million acres of U.S. farmland, according to the Department of Agriculture…
Also, BlackRock does not own a majority of U.S. single-family homes, the AP said.
How much property ownership is too much? Putting the amount of land or property into percentages is one way to think about it. Gates owns less than 1% of the farmland, BlackRock owns under 50% of the homes. The first figure suggests Gates barely owns anything while the second number is not a great one to note since I suspect owning 49% would not assuage those who retweeted this (and the likely figure is way under 10%).
Putting the ownership in absolute numbers might make a different argument. Gates owns 269,000 acres. That sounds like a lot, even in a big country in the United States. Or, if someone said BlackRock owns 60,000 homes, that would sound like a lot, even in a country with many more homes than that.
But, before we decide what numbers to use, we have to know what the concern is: should someone own 1% of the farmland? Should a company own tens of thousands of homes? The numbers can help illuminate the situation but they cannot answer the moral and ethical questions of just how much should one person or organization own? Using big or shocking numbers (even if they are incorrect) to suggest people should pay attention to a particular social problem is not new.
Homes ranging in price from $100,000 to $250,000, the typical cost for an entry-level home, have seen nearly a 28% decrease in inventory from a year ago, says the National Association of Realtors.
And smaller homes are also in short supply. In 1999, 37% of newly-built single-family homes were smaller than 1,800 square feet. By 2020, that share had fallen to 25%, Dietz said.
In comparison, in 1999, 66% of newly-built single-family homes were smaller than 2,400 square feet while in 2020, that share had fallen to 57%.
These are two very important factors for getting into purchasing a home. A lower price means a smaller down payment and mortgage is needed. Smaller homes are cheaper because they have fewer square feet and cost less to construct.
And without this ability to enter the housing market, it will take potential homebuyers longer to enter, if they can enter at all. This precludes them from building housing equity and stepping up to larger or more expensive residences in the future. It limits the ability of people to pursue homeownership, a goal many Americans have.
Tackling both price and housing size will be difficult in many markets where developers, builders, and those in the real estate industry can get more. Yet, here is an opportunity to appeal to an important sector of potential homeowners if solutions can be put into practice.
Some suggest that Japan is the model to follow. There, rental prices have largely remained flat over the last 25 years, according to data from the country’s statistics bureau. The reason is that the government controls zoning nationally and is more open to development in the number of houses it allows to be built. Just over a third of Japanese citizens rent the homes they live in, protected by a 1991 law called the Act on Land and Building Leases, which makes it difficult for landlords to end leases or prevent a tenant from extending their rental contract…
So where else should we be looking, if not to Japan, for the model to fix the broken housing market in large parts of the west? One option is Singapore, where public housing is built in specially designed communities and sold to individuals with a 99-year lease below market value. Selling on that property is highly restricted to reduce profiteering, but it can happen after five years of ownership. Nearly four in five Singaporeans live in public-sector housing, according to official statistics. “Prices can never get beyond regular working families,” says Ronald. “They have this virtuous circle, and it makes it interesting to think about the role of regulating housing.”…
Until late January 2022, housing developments in Germany were subsidized by the government below market rates for the first five years after being built. “It means tens of thousands of units every year come onto the market, keeping rental prices lower and preventing scrambles to buy a property,” he says.
A similar model exists in Austria and Switzerland, where the split is roughly 55 to 45 percent (in favor of renting in Switzerland, and owning in Austria), compared to an average European home ownership rate of 70 percent. When you get to the Austrian capital, Vienna, the home ownership rate is just 7 percent.
All of these sound like they would require some fundamental changes to housing policy in the United States. This might include:
A stronger national policy. This could be through programs available everywhere or guidelines that all states and municipalities have to follow.
A stronger emphasis on renting.
More government involvement in the construction of housing and/or longer-term government oversight of housing units.
None of these options would be particularly popular in the United States or easy to implement. Here are quick explanations why for each option above:
A national policy would come at the expense of the power of more local governmental actors. With real estate being so much about location, could a national policy truly address all of the different situations? Americans expect to be able to control or at least provide input into the use of land around them.
Homeownership is ingrained in American life as part of the attainment of the American Dream. This is ensconsed in zoning policy, supported by politicians and policies for decades, and Americans can be suspicious of renters compared to homeowners. Renting is more common in some areas compared to others but it is not seen as the ideal among Americans.
This does not mean that the housing landscape in the United States cannot change. The need for more housing and more affordable housing is acute. But, changes will likely take decades and sustained efforts.
“When everyone else is looking for a move-in ready home, there’s less competition for the fixer-uppers,” said Daryl Fairweather, chief economist at Redfin Corp. “I would not advise it for the faint of heart, but there are a lot of people who are willing to take on that risk because there is such a high reward.”
In 2021, homes in need of renovation sold at a faster pace than the two prior years, according to data from Realtor.com. Fixer-upper sales jumped 13.4% from 2020 to 2021, while the dollar volume of those deals surged 40.8% from 2019 to 2021, reflecting the high growth in sale prices across the broader market. Plus, listings described as “fixer-upper” or using other related terms by agents increased by 8% in December from the previous year…
In a survey by housing research firm Zonda, 33% of respondents said they would buy a fixer-upper for their first or next home but “only if I got a great deal.” Meanwhile, 27% said they would “if the repairs are minor.” Just 20% responded with a “no thanks.”…
On average, fixer-uppers cost 13% less than their move-in ready counterparts, or are about $40,000 less than the typical U.S. home value, according to Zillow. But if that home needs $80,000 to make it livable, that’s not such a great deal, Pendleton said. She recommends that those fixing up homes add an extra 20% onto their budget as a cushion for the unforeseen.
As the article notes, not everyone has an appetite, resources, or the skills for renovation. But, if the housing options are limited, this appears to be an increasingly attractive option for some. The data cited above suggests a small bump in people selling and buying such homes.
This is also interesting to consider from the other side: the sellers. If someone had a home that needed significant repair, this might be the time to not do those repairs and still get a good price. All those homes needing “TLC” or sold “as-is” now might not linger on the market for months.
More broadly, this hints at how much housing in the United States is eligible for repairs and renovation. The postwar suburban boom started roughly 70 years ago now. Those homes have already likely experienced a lot of repair and change and will undergo more in the upcoming decades. The McMansions of the 1990s and early 2000s will be the fixer-uppers of the future. And since Americans tend to like DIY projects and homeownership, we could be in for more decades of renovations.
I think that pride in accomplishment is healthy, but there’s another sense to my pride in homeownership that is, or was, harmful. It’s painful to admit this, but I think I had an unconscious sense that by navigating all the hurdles to home ownership, I proved myself to be “deserving.” That I am, perhaps, more clever, harder-working, more reliable, and somehow more “worthy” of owning my own home than others who haven’t accomplished that.
And to be clear, I knew that my ability to buy a house was, in part, the result of privilege, related to historical and ongoing racism. I have known for years, in an abstract, intellectual way, that my family had pathways to middle-class stability that were not available to others. That inequity was intentional, and racist. My family is white, and I know my grandparents benefited from subsidized mortgages and education benefits that were part of the GI Bill of Rights, which was structured in a way to exclude African Americans and other non-whites. I knew racial discrimination affected who gets jobs, compensation, or who gets mortgage loans.
But recently, when I became aware of an ongoing project by my WBEZ colleague Natalie Moore, my feelings about my house, and particularly that pride in homeownership, became more complicated. Natalie has been researching racially restrictive housing covenants in Chicago, and inviting WBEZ listeners to research their own home, to see if it was ever subject to racially restrictive covenants. Racial deeds and covenants have been getting a lot of attention recently, as more Americans are coming to understand this dimension of American racism. These deeds and covenants, which in most cases restricted white sellers to sell only to white buyers, enforced segregation, excluding millions of African Americans from living in certain neighborhoods. That exclusion limited their ability to access home ownership and the attendant opportunity to build wealth…
When I was seeking to purchase my house in McKinley Park, Linda and my father helped me with a gift that allowed me to afford the downpayment. It was a gift they may not have been able to make without the inheritance from Linda’s parents, which in turn began with her grandfather’s development that excluded Black people and Jews. The gift I received wasn’t enormous, but without it, I would have had to save for at least another year and may have missed the opportunity to buy into my neighborhood at a low cost, as prices are rising.
The Matthew Effect in action: homeownership and wealth begets more homeownership and wealth. More broadly, if you have wealth it can be invested to create more wealth while it can be difficult to start on a path to wealth with little or none to start with.
Even as Americans connect homeownership to responsible homeowners and hard work, those are not the only factors involved. Others include access to capital both for a down payment and for a mortgage and access to particular residential units and communities (whether through formal or informal reactions). And because homes can be expensive and institutions and communities can change slowly, it takes time to acknowledge, address, and change past patterns.
Legally Sociable 