US now has 201 communities with median home values over $1 million

Rising housing values in the United States means more communities have a median home value of over $1 million:

Meanwhile, 29 cities and towns joined those with a median home value of $1 million or more this year, bringing the total to 201. Nineteen municipalities joined the million-dollar club last year.

They include San Jose, California, whose median value rose from $930,900 to $1.09 million; Fremont, California ($966,000 to $1.13 million); Burbank, California ($845,700 to $1.01 million); Newton, Massachusetts ($977,200 to $1.07 million); and Shelter Island, N.Y. ($903,500 to $1.15 million)…

Of the roughly 15,100 larger neighborhoods around the country analyzed by Trulia, 838 have median home values of $1 million or more and about two thirds of those are in California. Nearly 30 percent of California’s neighborhoods have a median home price of at least $1 million, the most by far of any state. New York, Florida and Washington followed.

It is not surprising that California leads the way given the housing issues in the state (recent example of lawsuits for housing in suburbs).

If I had to guess about the rest of the communities, they are (1) clustered around coastal cities in the West and Northeast (with exceptions being small, extremely high-end suburbs in the Midwest and South) and (2) most of the communities are suburbs. The first guess has to do with limited land, demand, and certain policies. I base the second conjecture on the facts that suburbs prize single-family homes, exclusion, and local control.

The double-edged sword of record home prices in many American metro areas

The housing bubble of the late 2000s may be long gone as housing prices continue to rise:

Prices for single-family homes, which climbed 5.3 percent from a year earlier nationally, reached a peak in 64 percent of metropolitan areas measured, the National Association of Realtors said Tuesday. Of the 177 regions in the group’s survey, 15 percent had double-digit price growth, up from 11 percent in the third quarter.

Home values have grown steadily as the improving job market drives demand for a scarcity of properties on the market. While prices jumped 48 percent since 2011, incomes have climbed only 15 percent, putting purchases out of reach for many would-be buyers.

The consistent price gains “have certainly been great news for homeowners, and especially for those who were at one time in a negative equity situation,” Lawrence Yun, the Realtors group’s chief economist, said in a statement. “However, the shortage of new homes being built over the past decade is really burdening local markets and making homebuying less affordable.”

Having read a number of stories like this, I wonder if there is a better way to distinguish between economic indicators that are good all around versus one like this that may appear good – home values are going up! – but really mask significant issues – the values may be going up because many buyers cannot afford more costly homes. The news story includes this information but I suspect many will just see the headline and assume things are good. Another example that has been in a lot of partisan commentaries in recent years (with supporters of both sides suggesting this when their party was not president): the unemployment rate is down but it does not account for the people who have stopped looking for work.

In the long run, we need (1) better measures that can encompass more dimensions of particular issues, (2) better reporting on economic indicators, and (3) a better understanding among the general populace about what these statistics are and what they mean.

Percent of homes worth over $1 million quadruples in last 15 years

Rising housing values, particularly in certain markets, mean that there are now more American homes worth over $1 million:

The share of homes valued at more than $1 million has surged more than fourfold since 2002, according to new data from real estate site Trulia, which analyzed the luxury real estate market in the top 100 U.S. metropolitan areas. Across those regions, about 4.3 percent of homes are now worth at least $1 million, compared with about 1 percent in 2002, said Trulia senior economist Cheryl Young…

The share of homes valued below $1 million is “decreasing at a rate we’re surprised by,” Young said. “It was 98.9 percent in 2002, and now it’s 95.7 percent. That is pretty shocking.”

Rising real estate values, tight inventory and a lack of new construction are contributors the surge in million-dollar homes. Yet another factor may be at play: rising income inequality, which has benefited the bank accounts of America’s richest families…

It may explain why the share of homes worth $5 million or more is growing even faster. This segment is what Trulia describes as “the most luxurious homes available.” To be sure, it remains a tiny part of the real estate market, accounting for just 0.28 percent of overall sales. Still, that figure is five times higher than in 2002, Trulia said.

In the abstract, who is opposed to rising housing values and the benefits that confers to homeowners and communities? Yet, the flip side of rising housing values is that more homes might then be out of reach for average or even well-off residents.

Three related thoughts:

  1. While those fighting for more affordable housing have discussed this flip side for decades, I wonder at what point it may be viewed as immoral to live in an expensive dwelling.
  2. Expensive homes do not usually exist in isolation. For example, it would be very unusual to drive down a street of low-value homes and all of the sudden see a large expensive home. Expensive homes are often part of larger projects – buildings or developments or subdivisions – that give way to a whole wealthier lifestyle that include expensive homes. In other words, this is not just about the value of individual homes: it is about clusters of homes and locations that help elevate some housing values.
  3. Related to both #1 and #2, can we expect some residents to underestimate their housing values or sell at lower price points than they could get?

Live-in home managers help sell (expensive) homes

A profile of home managers highlights one of the newest techniques for selling expensive homes:

The 7,800-square-foot home where the couple currently live, at 1334 Fox Glen Drive in St. Charles, is on the market for $1.5 million. It has a six-car garage with a “motor court” driveway (the owner’s Porsche 718 Boxster is still parked inside), six bedrooms, eight bathrooms, a tennis court, and 2 acres of land. It’s four times the size of the Callahans’ townhouse in Geneva.

“Sometimes I walk in and think, ‘Really? I get to live here?’ It’s like a fairy tale land,” Janine said, while standing in a stunning living room with giant windows that overlook a backyard koi pond and waterfall. “It’s a privilege for us to do this. … It’s like we’re living someone else’s life for a while.”…

Realtors hire home managers to live in vacant luxury homes that they’re trying to sell because it saves the seller money, Mike Callahan says. It lowers their staging costs, since home managers bring their own furniture…

They’ve lived in 12 houses over the past eight years in Batavia, Wayne, Geneva, Elburn and St. Charles. They’ve stayed as few as 45 days and as long as 16 months. Every time they move in, Mike carries Janine across the threshold. “It’s just our thing,” he says…

“You can’t be spontaneous because it always has to be clean. The home must always be ready to show. You have to be ready to turn all the lights on and get out (for a showing),” Janine said, noting that it’s not unusual for a Realtor to call at random times and say, “We’re sitting in the driveway, can we come in?”

This sounds like it has reality TV potential, particularly if the live-in managers stayed in homes for relatively short periods. The show could track the staging and home showings alongside the lifestyle that comes with moving from nice home to nice home.

I also wonder if such managers can up their rates when they have a proven track record of selling homes (1) quickly and (2) at higher prices. The true value of a home manager might not just be saving money (such as lowering insurance costs and spotting potential problems) but moving homes for good prices.

Finally, what is the home value where having a live-in manager is not worth it? The home mentioned at the beginning of the article is an expensive one but could a typical suburban homeowner (think more of the $400-800k range) benefit from and/or afford a live-in manager?

Are TV portrayals of NYC housing realistic? An (incomplete) analysis

Earlier this year, the Washington Post ran an interesting analysis of how realistically the housing for numerous New York City characters was portrayed:

TVhousinginNYCWashingtonPostApr17

The article has a detailed breakdown of the housing in Girls and then has summaries for everything else.

Although this does not include every major television show depicted in New York City (I could think of a number off the top of my head), there are two noticeable patterns in the shows discussed in this particular article:

  1. Three popular and influential shows from the 1990s, all ones that supposedly made the city attractive to new generations, showed unrealistically large apartments. The city may look like a fun place to be when everyone has plenty of space and cool stuff.
  2. The number of working class shows here is limited. Television does not do a great job in general portraying the working class – see the documentary Class Dismissed – and this article deals mostly with shows with higher class aspirations.

Additionally, it seems like it would be important to also discuss the field of housing prices within New York City over the last sixty years. Manhattan is one of the most expensive places in the world now but was it always this bad? Additionally, the fates of the boroughs have changed over time.

 

Emergencies due to homelessness in major cities on the West Coast

The rising real estate prices on the West Coast have not helped those on the economic edges find places to live:

—Official counts taken earlier this year in California, Oregon and Washington show 168,000 homeless people in the three states, according to an AP tally of every jurisdiction in those states that reports homeless numbers to the U.S. Department of Housing and Urban Development. That is 19,000 more than were counted in 2015, although the numbers may not be directly comparable because of factors ranging from the weather to new counting methods.

—During the same period, the number of unsheltered people in the three states climbed 18 percent to 105,000.

—Rising rents are the main culprit. The median one-bedroom apartment in the San Francisco Bay Area is more expensive than it is in the New York City metro area, for instance.

—Since 2015, at least 10 cities or municipal regions in California, Oregon and Washington have declared emergencies due to the rise of homelessness, a designation usually reserved for natural disasters.

This is not an easy social problem to address in places that are already expensive. Still, what would it take to mobilize a good portion of the population in these cities and regions to do something about providing affordable housing? The article mentions a recent vote in Los Angeles to provide money for 10,000 affordable housing units but it will be interesting to see how long it takes to build these, where they will be located, and what the long-term effects of such housing will be.

Two new options for those aspiring to a mortgage: take on an investor or list on Airbnb

Axios highlights two businesses trying out some models that could help potential homeowners acquire a home:

James Riccitelli, CEO of Unison Home Ownership Investors, says in an interview with Axios that he is consistently surprised that nobody in the decades-long history of U.S. housing finance had thought of the company’s business model. Unison co-invests with prospective homebuyers—typically putting 10% down along with a bidder’s own 10%, helping them qualify for a standard 20%-down home loan. Depending on the lender Unison partners with, a homebuyer can end up putting as little as 5%:

  • Unison’s investors—who Riccitelli says are typically large pension funds with long investment time horizons—realize a profit only when the home is sold. The product is attractive to such investors because they need assets that match their liabilities, i.e. pension payments sometimes 30 or 40 years away.
  • Other than a few private equity funds that bought up cheap single family homes at the housing market’s bottom between 2010-2012, there are few ways for investors to own a diversified pool of residential real estate, a market that at $30 trillion is more valuable than the U.S. stock market
  • A homeowner can buy Unison out at any point after three years—as long it recoups its original investment. A homeowner can sell the home to another party at any point, however, even if it results in Unison taking a loss.
Loftium has an alternative strategy. It will will contribute $50,000 for a down payment, as long as the owner will continuously list an extra bedroom on Airbnb for one to three years and share most of the income with Loftium.

This strategy might be particularly appealing in booming markets like Seattle, where rent prices are rising even faster than home values themselves, and which are popular tourist destinations.

These present alternatives to the traditional mortgage market with one emphasizing long-term payoffs (and assuming that housing values continue to rise at investment-level rates) and the other trying to capitalize on rental opportunities in the next few years. It will be interesting to see if such options (1) become popular (and if so, how traditional lenders fight back) and (2) whether there are negative consequences to such alternatives (and reactions to them including regulation).