Tag Archives: housing values

Around 25% of Chicago area mortgages still underwater

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The numbers aren’t as bad as two years ago but the sizable number of underwater mortgages in the Chicago region still present a problem for the housing market.

One-quarter of homes with a mortgage in the Chicago area, and almost 24 percent in Illinois, are “seriously” underwater, meaning homeowners owe at least 25 percent more on the loans than the property’s value, according to data released Thursday.

The report from RealtyTrac, which shows the percentage of underwater homeowners growing in most parts of the nation, helps explain why more homes are not coming on the market, despite the desires of would-be sellers. They simply don’t have the equity in their properties to be able to sell them unless they bring cash to the closing table or get approval from their lender for a short sale.

Also driving up the percentage of underwater borrowers is the slowing rate of appreciation that many housing markets are seeing, a trend that economists say is a return to more normalized boosts in housing prices. In the Chicago market, median prices of home sales in March posted a dramatic year-over-year spike after eight months of flat or declining prices.

Outside of the booming housing markets, these underwater mortgages are going to take a long time to clean up. In other words, that big drop in housing values with the economic crisis has long-lasting consequences.

I know this isn’t going to happen but I would love to see numbers on whether it might be possible that the new housing industry could receive a jumpstart through a mass mortgage reduction plan. If enough people could get out from under the underwater mortgages and sell their own homes and move (maybe this would be a requirement for getting a mortgage reduction), could this be a net economic gain in the end?

Zillow back with Trick or Treat ratings for major cities

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Zillow is back with its 2014 rankings of “Best Cities for Trick or Treating.” San Francisco, Los Angeles, and Chicago round out the top three. The methodology has not changed much compared to 2013:

We take data seriously here at Zillow, even when it comes to trick or treating. While wealthier neighborhoods are often known for their frightfully sweet harvest on Halloween night, we calculate the Trick-or-Treat Index using a holistic approach with four equally weighted data variables: Zillow Home Value Index, population density, Walk Score® and local crime data from Relocation Essentials. Based on these variables, the index represents cities that will provide the most candy, in the least amount of time, with the fewest safety risks.

In the era of Internet lists, this is a potentially catchy list. The factor of housing values filters out a lot of places with the top 10 dominated by coastal cities with Chicago as the only Midwestern or Southern entry.

Yet, it also seems limited to major cities, not even metropolitan regions, so its scope is limited. Many Americans live in suburbs or smaller big cities and those don’t seem to make the cut here. Perhaps Zillow doesn’t have the same availability of data in these places.

I suspect that people within these cities would not all appreciate it if people took these rankings seriously and in large numbers flocked to the highest-rated neighborhoods just to get better candy more quickly. But, it would certainly be interesting if large numbers did show up…

When housing values rise, so do property taxes and concerns about how those taxes are collected

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Austin, Texas is a hot real estate market which means housing prices are going up – which means property taxes are also rising and this has some homeowners up in arms about how the city and state pursue property taxes.

The arrival of this year’s appraisal notices — which in Travis County showed homes’ average market values jumped 12.6 percent and average taxable values rose 8 percent for 2014 — is sparking a push for reform. Similar jumps have occurred in Williamson and Hays counties.

Real Values for Texas, a statewide group advocating for property tax reform, local officials and others say they believe enough momentum is building around the state to put pressure on the Legislature to fix what they say is a flawed property tax system. The issue is an especially hot one in Austin, where property values have risen at a much faster rate than wages in recent years, leaving more and more area homeowners saying they are struggling to pay their property tax bills.

At issue is what can be done. Market forces generally dictate home values. And with no state income tax, the state government and local taxing entities rely heavily on property tax for revenue to fund schools and many local services…

A key problem, critics say, is that the current system has shifted a disproportionate share of the burden of paying for schools and local services on homeowners, in favor of commercial and corporate interests who can afford to appeal their values and win big reductions year after year. The share of property taxes from homeowners to support public schools grew from 45 percent to 54 percent over a 12-year period, while commercial and industrial owners’ share has declined to less than 20 percent. (Other sectors, from oil and gas to personal property, make up the rest.)

One way to read this would be to see this in a long line of American homeowner complaints about property taxes. This has been a common theme in recent decades, famously illustrated by the Prop 13 campaign in California in the 1970s. Homeowners may enjoy owning a home but they tend to resent continually rising requests for money for local governments, even as they tend to want good, or even better, local services. Most homeowners want rising housing values as this increases the value of their investment yet don’t necessarily want to pay for it while living there.

Yet, the property tax reform suggestions here are interesting. Just how much should local homeowners pay compared to corporations? Is the best comparison to look at the rates each pays or the cumulative percentages each group contributes to the local pot of tax money? This could be related to a larger issue that goes beyond property taxes: what kind of tax breaks should corporations get from municipalities? This is a difficult issue to sort out as communities like jobs and important businesses yet homeowners tend to resent “handouts” for corporations that they think could afford to pay more.

Canada’s rising middle class the result of a housing bubble?

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In eclipsing the American middle-class as the world’s richest, is the increasing wealth of the Canadian middle-class largely due to a housing bubble?

One word that doesn’t appear in the article, however, is housing. The U.S. is emerging from a catastrophic collapse of the housing market that obliterated household wealth for millions of middle-class families. Canada, however, is in the midst of a delirious housing boom and a personal debt craze that reminds some economists of the U.S. market exactly a decade ago (before you-know-what happened)…

One year ago, Matt O’Brien calculated that Canada’s price-to-rent ratio was the highest among advanced economies, making it the “biggest housing bubble” in the world. Canada’s historic housing boom (and our historic bust) comes at the precise moment in history that they pass us to grab the title of World’s Richest Middle Class. Just a coincidence?

Maybe. As the LIS data in the Upshot article shows, Canada’s median earner has been gaining on America for decades, powered by a strong service economy, supported by a disproportionately large energy industry. Remarkably, U.S. GDP-per-capita has been more than 15 percent richer than Canada’s for the last 25 years (see graph below), even as the median American worker has fallen behind the median Canadian earner. That’s a pretty clear indictment of U.S. income inequality…

Still, as many economists like Atif Mian and Amir Sufi have have argued, strong housing markets support middle-class income growth just as housing busts wreck middle-class income growth. The effect can be direct (more houses means more construction jobs*) and indirect (when families feel richer from rising housing prices, they spend more across lots of industries, raising incomes). As Reihan Salam writes, “the central driver of the decline in employment levels between 2007 and 2009  was the drop in demand caused by shocks to household balance sheets.”

Housing is an important factor in a middle-class lifestyle from being able to own a house (more important in certain places like the United States as a sign that “we’ve made it” as well as providing for one’s family) to affording a good neighborhood (which is often associated with lots of other good outcomes like better schools, less crime, more local resources) to paying relatively less for housing than those with lower incomes.

All that said, there is no guarantee that housing will be a significantly positive financial investment in the long run. And what happens in Canada if such a housing bubble does burst?

Purchasing a home in 25 different American cities

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Here is a quick look at the estimated incomes it would take to buy a home across American cities:

HSH Associates, a New Jersey-based publisher of mortgage industry data, took a stab at what it would take, incomewise, for buyers in 25 metro areas to be able to purchase a median-priced home, based on the demands of principal and interest payments.

Coming out on top (or on the bottom, depending on how you look at it): Cleveland, with an income of just $22,348 needed to put a set of house keys into your palm…

In calculating its ranking, HSH took the National Association of Realtors’ third-quarter median home price data, as well as its own figures on average interest rates for 30-year, fixed-rate mortgages, to estimate what homebuyers in 25 major metros would need to earn to purchase the median-priced home, he said…

At the top of the expense range was San Francisco, with an income of $125,072. Skipping around the middle of the list, HSH pegged the base line salary for Chicago at $37,078 (11th place); Minneapolis, at $37,115 (12th); Baltimore, at $46,623 (16th); Seattle, at $63,145 (19th); and New York, at $71,255 (22nd place). The full list is at hsh.com.

Quite a difference across cities. There are a lot of factors involved here including the availability of housing, the quality of housing, jobs available in the metropolitan regions, and incomes. Even then, there are huge differences within specific regions.

While these figures aren’t surprising, it is also a reminder of the difficulty of making cost-of-living calculations for the entire United States. On one hand, it might seem obvious to adjust for region or city because of the big differences in housing costs, which typically comprise a sizable amount of expenses. On the other hand, people do have some ability to move so they aren’t necessarily locked in to certain expenses. Yet, the ones who can best weather these cost-of-living differences are already wealthier and have more options.

As Chicago area home prices rise, housing affordability drops

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Affordable housing is a persistent issue in the Chicago region – and the percent of affordable homes has dropped in the last four quarters:

Housing affordability in the Chicago area just took its biggest quarterly tumble since early 2005.

During the year’s third quarter, 63.7 percent of all new and existing homes sold in the area were affordable to families earning the area median income of $73,400, according to the most recent National Association of Home Builders/Wells Fargo home affordability index.

The index put the median home price in the Chicago area at $210,000.

That compares with the 70.6 percent of homes being considered affordable during the second quarter. It was the fourth consecutive quarterly slip in local affordability. This latest decline was the most dramatic since the change recorded from the first to second quarters of 2005.

While this is a shift as home prices rise, it is a reminder of the bigger issue: the Chicago area has a long-term problem with affordable housing. This is the case in the city of Chicago as well as suburban areas. This isn’t just an issue of people being able to find decent housing; it is related to businesses being able to find workers (who don’t have to travel ridiculous distances from housing they can afford), people being able to access good school districts (which are often related to higher housing values), and whether there is continued residential segregation where those of certain racial and ethnic groups can’t live in certain areas.

Unintended consequences: when property values decline, seniors with frozen property taxes pay more

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Programs that freeze the property taxes of older homeowners may reduce their taxes for a long time – unless property values decline and seniors end up paying more:

The state’s Senior Citizens’ Assessment Freeze Exemption works by capping participating homeowners’ property assessments. So even if the property’s value rises each year, a participating homeowner is taxed only at the level when the “freeze” was put into effect. In better times for real estate, participating homeowners in some suburban townships averaged as much as $38,000 reductions on their assessments, which would have reduced their property tax bills by hundreds of dollars. But instead of just losing out on the revenue, governments shift the tax burden onto property owners who don’t qualify for the freeze.

The law was intended to prevent fixed-income seniors from being taxed out of their homes since, to qualify, participating homeowners have to earn less than $55,000 a year.

“But nobody thought property values would decline,” said state Rep. David Harris, an Arlington Heights Republican who sits on the House property tax subcommittee. “Now, the issue is huge.”

Here’s why. If property values drop below the frozen level, there is no longer any benefit to the participating homeowner because he or she is taxed at that lower level.

That wouldn’t be a problem if the value dropped for only that homeowner. But when the value drops for everybody and the tax levies for all government bodies stay the same, or more likely increase, tax rates have to increase to meet the levies governments are allowed to collect.

The most important thing to me in this story: nobody assumed property values might drop. In other words, legislators and those receiving the tax help didn’t think about this possibility. So now they are stuck trying to scramble to find a fix.

While there are certainly other reasons contributing to the financial troubles of the last seven years or so, I wonder how much ignoring this simple idea – property values could decline for a while and not bounce back – contributed to the larger issues.

Headed toward another housing bubble in the United States?

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A CNBC editor looks at some data that suggests the United States may already be experiencing a housing bubble:

On Monday, we got the fourth month of home affordability data coming in below trend, which is a strong confirmation that the housing market is once again in a bubble. (The NAR index is published with a two-month delay, so the latest numbers are for July).

The affordability index measures the household income needed to qualify for a traditional mortgage on a median-priced single family home. So it’s looking at a mortgage with a 20 percent down payment and a monthly payment below 25 percent of income at the currently effective rate on conventional mortgages…

The index has been dropping rapidly since peaking in January at 210.7. We’re now down to 157.8, according to the preliminary numbers released for July on Monday. Home prices have been rising and interest rates climbing, while wages haven’t kept up. That’s how we got to the lowest level of affordability seen since July of 2009.

According to the NAR, this shouldn’t be dire news. A score of 157.8 officially indicates that a household earning the median income has 57.8 percent more income than needed to get a mortgage on a median priced home.

A few interesting things to note here:

1. There is some debate about whether this index has predictive power. In other words, it isn’t necessarily easy to identify when there might be a housing bubble.

2. This adds more evidence that a housing recovery in the US is a long-term project. Housing prices may have risen so much by the mid-2000s that it will take years to sort it all out. A slow-growth economy doesn’t help.

3. Instapundit has a good take: “I WISH IT WOULD GET TO MY NEIGHBORHOOD.” While the idea of a bubble could be troubling, there are plenty of homeowners who would welcome some increased value for their home. Of course, that increased value might disappear again…

McMansions vs. trees in Bethesda, Maryland

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Here is how the community of Bethesda, Maryland is planning to save trees from an onslaught of McMansions:

County Executive Isiah Leggett last year introduced a Tree Canopy Conservation bill that would force private property owners in small lots to pay a still-to-be-determined fee for lost canopy into a fund that Montgomery would then use to plant new trees.

Now, the County Council is wrangling with both sides to find a compromise.

Members of the building industry say the county shouldn’t legislate tree protection on private property, that they already avoid removing trees because of associated costs and that existing stormwater management requirements make protecting trees extremely difficult.

Some conservationists say the bill doesn’t go far enough, that replacing mature trees with new ones still takes away from the canopy, which everybody agrees is important for environmental and economic reasons.

Sounds like a typical suburban debate: should green interests or building/economic interests win out? The article doesn’t say this but I imagine there might be some old-timer versus newcomer aspects to this debate. If you have lived in the suburb for some time, trees are a good thing. They are not only green, they look better, suggest neighborhoods have stability, and contribute to higher housing values. If you are a builder or involved in real estate or want to move into places like Bethesda, you might want to pay less attention to trees and introduce new housing options.

One interesting note in the debate: there was some conversation about what percentage of tree canopy is desirable in a community. One pro-housing advocate suggested Bethesda already has more tree cover than much of the county. Just how much tree cover is necessary? Is a certain percentage related to housing values?

Zillow starts estimating remodeling costs

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Zillow is already known for estimating housing values but just last week they started offering another estimation: what it will cost to remodel.

On Tuesday, Zillow waded into the world of remodeling, by pairing its database of photos of pretty rooms (from its for-sale listings) with the tool that seems to drive most aspects of American life these days, the algorithm.

Thus, the company is attempting to answer the obvious question that dogs glossy magazine layouts and cable TV decorating shows: How much would it cost to do a room like that, anyway?

Remodeling costs are notoriously difficult to generalize about with the public, for a number of reasons…

Undeterred by all that, the website has rolled out Zillow Digs, which has launched with about 6,500 photos of kitchens and master baths. Beyond mere real estate eye candy, though, it also has brought in a team of contractors to offer estimates of the cost of each room’s appliances, finishing materials, labor, etc.

As the article notes, this could be quite a money maker with the number of Americans who remodel their homes. It seems like the algorithm could benefit from getting some data after the remodeling takes place; perhaps a later appraisal or an estimate based on a later sales price. Of course, this would require waiting some time after the remodeling takes place and perhaps there are not enough cases of remodeling within a certain geographic area to make a good estimate.

In the end, it will be interesting to see how many people make use of this new site. Additionally, how many will be willing to make financial decisions based on the estimates from the site?