Tag Archives: housing values

Century 21 says winning NFL teams boost housing prices

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A new study from Century 21suggests housing values rise when NFL teams win:

The question was this: What is the impact on a city when the hometown team does well or doesn’t do well? Century 21 looked at teams’ successes, population growth from census numbers, home value appreciation and attendance rates. And the correlation between on-the-field success and real estate prices was evident:Four of the five cities with teams that went from a losing record in 2010 to a winning record in 2011 saw average home sales prices increase between 2010 and 2011.

After winning the Super Bowl, Green Bay, Wis., saw a population growth of 1.7 percent in 2011, compared with runner-up Pittsburgh’s 0.6 percent growth.

Going from a record of 10-6 in 2010 to 2-14 in 2011, Indianapolis, the home of the Colts, saw a 19.8 percent decrease in home sales.

Eight of the nine cities with a team that had attendance rates of 100 percent or more in 2011 saw average home sales prices rise that year.

Here is the original Century 21 blog post with this information.

The NFL is a powerful entity but does it have this much power? Is this due to a small sample size (this article mentions only one year of data)? Are there other factors behind this correlation? If I had to guess at what is going on here, I suspect this is too small of a sample and that 2011 prices in certain cities happened to coincide with NFL results. Why not look at the housing crisis years and see the relationship between records and housing values?

I’m generally skeptical of sports fans and others that claim sports are important for the civic pride of a community or that new stadiums need to be funded by taxpayers because the loss of a team will hurt the local economy. However, this could be pure genius from Century 21. What better way to boost business than to hook your services to the popular NFL? Hey, there was even a Century 21 2012 Super Bowl ad!

Hard to get green homes appraised as there is a lack of knowledge, comparables

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Interest in green homes, exemplified by net zero energy homes, may be growing but there is an issue: because there is a lack of comparable homes, appraisals for green homes are more difficult to do:

Last year, single-family green home construction represented 17 percent of the homebuilding market, in effect doubling since 2008, according to a report by McGraw-Hill Construction. Researchers predict that by 2016, green home construction could comprise 29 percent to 38 percent of the market, as builders devote more time to green projects. The share of remodeling projects labeled as green is expected to rise as well…

Appraisers are slowly getting up to speed. Since 2008, almost 4,900 appraisers nationally have participated in 275 courses on green and energy-efficient valuation conducted by the Appraisal Institute trade group. Still, green home appraisals continue to be difficult, in part because there are few comparable sales but also because the building technology is changing. That makes it hard for appraisers to value — and for lenders to accept those higher values — home features that can run the gamut from rain barrels to a tankless water heater to a whole-house geothermal heating system…

In the Chicago area, Midwest Real Estate Data LLC added “green” fields to its multiple listing service so sellers can highlight environmentally friendly features of their homes to potential buyers. The Appraisal Institute created an addendum to appraiser forms to help analyze the value of green features. And lenders are starting to track so-called green mortgages to see if defaults are lower than on traditional home…

To increase the chances that improvements that go above and beyond what’s required by local building codes is correctly valued, experts recommend documenting green features added to a home.

They also urge builders and consumers to consider obtaining third-party certification about the home’s energy efficiency.

Put another way, there is more cultural and economic interest in green homes. People want to both reduce their energy costs but also want homes that are “responsible” and not seen as energy-hogging McMansions. However, it takes some time for the whole market to catch up to the perceived higher values of these new homes. This is the real issue here: while extra money and time may be spent on green features, appraisers aren’t yet “rewarding” builders and homeowners with the increase in housing value they think a more efficient and green-conscious home deserves.

Thinking more broadly about this, I wonder about the motivations of builders who are constructing more green homes. Are they motivated more by wanting to be green or by the knowledge there is a growing market for such homes? Of course, being green and making money can go together and perhaps this is how it should work in a perfect world. But, this might matter for some who are more concerned about being green and who wonder if being green is currently about being trendy which could endanger such causes down the road when the cultural and economic winds change.

Chicago housing values reverse 49 month slump – with a $100 gain

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The latest data about median housing values in the Chicago region suggests prices are back up – but only a little:

May’s 0.1 percent year-over-year gain in the median sales price of existing homes in the nine-county Chicago area broke a 49-month losing streak that stretched to April 2008. The last time they showed a year-over-year increase was March 2008, the month John McCain earned enough delegates to secure the Republican presidential nomination.

Does that $100 finally signal a turnaround for Chicago’s housing market, particularly because, from May 2010 to May 2011, the median price dropped 10.8 percent?

“What it signals is the first stage of the bumpy ride at the bottom,” said Geoffrey J.D. Hewings, director of the regional economics applications laboratory at the University of Illinois. “I think the trend is going to be modestly positive, but there may be months where it is not.”…

Not every county recorded improvement in its median price, but in Cook County, which accounts for more than half the Chicago area’s sales activity, the median price rose 3 percent, to $170,000, from $165,000 in May 2011. And in Chicago, where overall sales rose 19.6 percent, May’s median sales price of $203,000 was up 6.8 percent from a year ago, largely because of an 11.9 percent gain in the median sales price of single-family homes.

My take: the housing recovery will still take quite a while. A $100 increase the region probably doesn’t mean much and it is not until we see a number of consecutive months of an uptick that we can claim this is a trend. Even then, it could take years (decades?) to make up the drop in housing values.

 

40% drop in Americans’ wealth tied strongly to declining housing values

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Homeownership is big in American cultural ideology as well as on American asset sheets. Thus, when housing values drop, the wealth of Americans drops:

The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were in 1992…

But it was the implosion of the housing market that inflicted much of the pain. The median value of Americans’ stake in their homes fell by 42 percent between 2007 and 2010, to $55,000, according to the Fed.

The poorest families suffered the biggest loss of wealth from the drop in real estate prices. But middle-class Americans rely on housing for a larger part of their net worth. For some, it accounts for just more than half of their assets. That means every step downward is felt more acutely.

Rakesh Kochhar, associate director of research at the Pew Hispanic Center, calls this phenomenon the “reverse wealth effect.” As consumers watched the value of their homes rise during the boom, they felt more confident spending money, even if they did not actually cash in on the gains. Now, the moribund housing market has made many Americans wary of spending, even if their losses are just on paper.

Alas, it doesn’t look like housing values will be shooting back up anytime soon.

Some other tidbits regarding housing and wealth from the Federal Reserve report:

-“The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent) and families in the West region (median net worth fell 55.3 percent).” (p.2)

-“Housing was of greater importance than financial assets for the wealth position of most families. The national purchase-only LoanPerformance Home Price Index produced by First American CoreLogic fell 22.4 percent between September 2007 and September 2010, by which point house prices were fully 27.5 percent below the peak achieved in April 2006. The decline in house prices was most rapid in the states where the boom had been greatest. For example, California, Nevada, Arizona, and Florida saw declines of 40 to 50 percent, while Iowa saw a decline of only about 1 percent. Homeownership rates fell over the period, in part because some families found it impossible to continue to afford their homes. By 2010, the homeownership rate was back down to a level last seen in the 2001 SCF, although that was still higher than in any previous SCF since at least 1989.” (p.4)

-“As might be expected from the previous discussion on the role of the decline in housing values in explaining median and mean wealth losses across various demographic groups, there are large differences in net worth changes by housing status. Median net worth for homeowners fell 29.1 percent between 2007 and 2010, while the mean fell 12.7 percent. The decline in median net worth for non-homeowners (hereafter, renters) was only 5.6 percent, though the decline in the mean was much larger at 23.4 percent. Renters have much lower median and mean net worth than homeowners in any survey year, so the dollar value of wealth losses for the renter group tended to be much smaller; for example, the median net worth of renters fell $300 over the three-year period, in contrast with $71,500 for
homeowners.” (p.22)

-“Housing wealth represents a large component of total family wealth; in 2010, primary residences accounted for 29.5 percent of total family assets. Over the 2007–10 period, this percentage declined 2.2 percentage points overall. The relative importance of housing in the total asset portfolio varies substantially over the income distribution, with housing generally constituting a progressively smaller share of assets with increasing levels of income, as shown in the following table…Homeowners in virtually all demographic groups saw losses in the median, and most of those losses were substantial; the one exception was the lowest quartile of the net worth distribution, where homeownership
jumped 8.1 percentage points and the median home value increased 31.2 percent, most likely reflecting a compositional shift within that lowest wealth group. Otherwise, substantial decreases in median housing values were widespread.” (p.47-49)

It sounds like the West (compared to other regions) and homeowners (compared to renters) were hit hard by a drop in housing values.

Study: home values increase several percent very near a Walmart

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A new study suggests that the value of a home increases a few percent if it is located within a half-mile of a Walmart:

It turns out, according to their recently published research, that values increase an average of 2 to 3 percent for homes within half a mile of a Wal-Mart store and 1 to 2 percent when the home is a half mile to 1 mile from a store…

The duo studied more than 1 million home sales between January 1998 and January 2008 near 159 Wal-Marts that were built between July 2000 and January 2006. They compared the prices of homes within four miles of a store that sold up to 21/2 years before an opening or 21/2 years afterward. The long time frame was picked on purpose, after the researchers discovered that the median number of days between when Wal-Mart announced a new store and when it opened was 516 days.

The study also noted that Wal-Mart’s entry into a market often acts as a beacon, generating other economic development nearby…

“On average, the benefits to quick and easy access to the lower retail prices offered by Wal-Mart and shopping at these other stores appear to matter more to households than any increase in crime, traffic and congestion, noise and light pollution or other negative externalities that would be capitalized into housing prices,” the professors wrote.

One interpretation of these findings: people are willing to pay a little more to be located near some commercial development. They may not want to live right next to it evidenced by the fact that most municipalities have some strong guidelines about how commercial areas to demarcate the space between development and residential areas, often with some combination of a berm, a fence, and trees/bushes. But, being a few moments away from a place where you can quickly buy groceries (and Walmart is the country’s biggest grocery store) and other goods is a plus.

One thing that is likely ironic about this data is that while homes close to the Walmart are a little higher, it is unlikely that residents walk to Walmart even though they could. You could interpret this data as evidence people want to live closer to some denser commercial development but having a Walmart nearby is probably not about walkability.

I wonder if these researchers could also tell how much development Walmarts tend to attract. Do they tend to act as anchors for one corner of a busy intersection? Is it enough for development on multiple corners? How many square feet of retail space, on average, can be successfully operated once a Walmart moves in?

I’m now going to look for real estate ads that mention the proximity of a Walmart…I’m not holding my breath.

Americans optimistic that their home’s value will increase in the next year?

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Gallup recently released results of a new poll regarding homeownership and housing values. Here is some of the interesting data:

Americans are much more positive about the direction of housing prices this year than they were last year. They are significantly more likely to expect the average price of houses in their area to increase over the next 12 months than to decrease, 33% vs. 23%. Last year, Americans were about evenly split, 28% to 30%…

Today’s housing price expectations differ sharply from those during the housing price boom. In 2005, 70% of Americans expected house prices in their area to increase, while 5% expected them to decrease. Expectations moderated as prices hit record levels in 2006-2007. Expectations became more negative during the recession and financial crisis. In 2010, price expectations were similar to those anticipated today…

Fifty-three percent of Americans believe their house is worth more today than when they bought it, down significantly from 80% in 2008 and 92% in 2006. It confirms that many Americans are underwater in terms of the value of the home they currently own.

These lowered expectations about their housing values seems to go along with lower homeownership rates, reported at 60% by this Gallup data but the Census said the homeownership rate was 66% in the fourth quarter of 2012. I would guess that the Census has a bigger and better sample than Gallup to assess this.

I wish they had gone on to ask whether homeowners believe their houses should make money in the long run. These lowered expectations come after a period from roughly the early 1990s to middle 2000s where more people viewed their homes as good investments. Even after the economic crisis, I would guess a majority still believe their homes should earn them some money in the long run even if it takes a little longer to get that value.

How much it costs to live in the cheaper suburbs or expensive New York City

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Opponents of sprawl argue that while many prospective buyers move further away from work in order to buy bigger yet cheaper homes, there is a cost. One website argues that the each mile closer to work is $15,900 that could be spent on a house:

We all know that driving to and from work every day is costly, but exactly howmuch of a toll does each mile of commuting take on your finances? This True Cost of Commuting graphic breaks it down.

Taking stats and calculations previously mentioned by Mr. Money Mustache, the infographic illustrates just how expensive commuting is. Each mile you live from work costs $795 in commuting expenses per year (assuming a driving cost of 34 cents per mile and factoring time lost with a salary of $25 per hour). $795 a year for just one mile! You could buy a house worth $15,900 more with that, as Mr. Money Mustache pointed out in his article, since $795 would cover the interest on a 5% mortgage rate.

If you don’t want to calculate in the time-is-money factor, each mile (one way) of commuting will cost you $170 a year. It’s a compelling reason to move as close to work if you can (or bike to work or telecommute).

See the large infographic here. I don’t know about Mr. Money Mustache’s calculations but this is a sizable number.

At the same time, there were reports this week that the Occupy Wall Street protestors tend to live in pricier homes. As Megan McArdle notes, this is a consumption choice where people decide to spend more of their income on a home in a great city:

My initial reaction was the same as many people I’ve seen in comments sections: the protest is in New York, which is expensive.  This is hardly surprising.

But on second thought, I don’t think that’s quite right.  At least some of the houses identified by the Daily Caller are in places like Texas and Wisconsin.  But more importantly, I’m not sure we should “discount” these home values for location.  The fact is that living in an expensive city is a consumption choice.
You hear this argument all the time from people in New York.  “Rich?  Hah!  We’ve got four people in 1600 square feet, and our school bills are going to put us into bankruptcy.”  Many New Yorkers believe that they should be given some sort of income tax abatement because of the expense of living there (with the lost revenue being made up from “really rich” people, natch).  Slightly less affluent New Yorkers frequently believe that landlords should be forced to offer them “reasonably sized” apartments at a modest fraction of their income, because after all, otherwise they couldn’t afford to live in New York…
Living in a blue state is a choice.  If coming to New York meant that you had to put four people in a three bedroom apartment that’s uncomfortably far from a subway line, instead of buying a nice little condo in Omaha, this does not mean that you are not “really” better off than your counterpart in Omaha; it means that you have chosen to consume your extra wealth in the form of “living in New York” rather than in the form of spacious real estate, cheap groceries, and an easy commute.

So what people in the Midwestern suburbs might spend on a daily 20 mile each way commute in a SUV translates into a more expensive apartment in New York City.

Both stories cited above suggest consumption is a choice. But is it truly an unfettered choice? What would lead some people to aim for the bigger yet cheaper house in the suburbs and others to spend more money on a smaller place in a cosmopolitan paradise? Perhaps this information would help both sides engage in conversation rather than talk past each other and try to force the other side to follow their logic…

Of course, we could look at the broader trend of American political and cultural discourse on this subject. On the whole, government policies have promoted suburban living while a few big cities, such as New York City, have successful dense, mass-transit oriented living. Cultural discourse, even if it is shifting toward the younger generation’s increased interest in denser living, still privileges the suburban American Dream.

Prediction: housing prices in for a third dip

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According to one firm, the housing market in the United States will get worse soon:

According to Fiserv, a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv’s chief economist…

The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The First-Time Homebuyer Credit helped perk prices up by mid-2010, but by the time the credit expired, prices fell again.

In the second dip, which was reached last winter, prices were down 33% before staging a mild rally that was artificially spurred as banks slowed the processing of foreclosures following the robo-signing scandal, which found that loan servicers were rapidly signing foreclosures without properly vetting them.

This is a long term issue for the country to address and it’s hard to imagine that recent political rhetoric on the matter will help.

What could be particularly interesting in this whole affair is how the drop in values or a slight recovery will differ by region. While we have already experienced this, we could be in for long-term disparities where certain metropolitan regions like Washington D.C. which has risen to the top of rankings of wealth are in stark contrast to older Rust Belt places (like Youngstown) and also newer depressed places (like Las Vegas). One size fits all housing policies are likely not enough to help everyone.

Senate proposal to reward immigrants who would buy $500k in housing

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The down housing market is leading to some interesting ideas including one from two Senators which involves rewarding immigrants who are willing to buy expensive homes:

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out…

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

This seems like it would be part of a discernible shift in the immigration conversation: primarily letting rich or educated immigrants into the United States.

The real question: does this really help the housing market? What kind of impact are we talking about – a 1% boost, 10% boost? As the article suggests, wealthy foreigners are already buying property in other countries. I’ve highlighted a couple of stories where wealthy Chinese buyers have purchased homes in New Zealand and Vancouver, Canada. When this happens, locals have mixed reactions. Would this proposed policy simply promote more foreign investment or would it push people to actually move to the United States and work here?

Would this bill also only help more wealthy areas, such as big cities or coastal/vacation regions? Would this primarily benefit people with bigger, more expensive homes?

Not just one national housing recovery

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National figures about the housing market give us an idea of what is happening across the United States. But if all real estate is local, it might be worthwhile to remember that the housing recovery may or may not be happening at different rates in different regions.

It would be interesting to hear housing experts talk about what this means for attempted national policies regarding housing. Would national policies take care of what needs to be done in Fresno, California and also Detroit, Michigan?