For five years running and the highest priced real estate by close to $2 million: America’s most expensive zip code

One way to consider the geographic concentration of wealth in the United States is to look at the most expensive zip codes. The leader is both persistent and has housing costs significantly above others on the list:

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“Reaching a new record median sale price at $7,475,000, Atherton’s 94027 remains the #1 most expensive zip code in the U.S. for the fifth consecutive year — nearly $2 million ahead of the runner-up,” the real estate property firm said in a news release. “Not only that, but the billionaire favorite also saw its median rise 7% year-to-year, suggesting that this exclusive enclave may continue to retain its leading position in the future.”…

The list of the ten most expensive zip codes includes several locations in the Bay Area, one in the Boston area, one outside New York City, one in Miami, several in southern California, and one outside Seattle. These are not surprising given the money in such locales plus the high real estate values in these markets.

At the same time, the Atherton zip code stands out. The housing is almost $2 million higher than other desirable locations. This does not necessarily it has the most expensive properties in the United States but it does speak to the uniformity across the zip code. And this has been the most expensive zip code for five years running. There is consistency which could be related to development activity (or a lack thereof), demand for housing in that particular place, and local regulations and zoning.

Even as numerous scholars have studied the concentration of poverty in certain locations or gentrification and changes in particular locations, I have not read as much on the concentration of wealth. How often does top-end wealth change locations? I would guess at least some of the zip codes in the top ten have been significantly wealthy for a long time. However, locations can change, new industries arise, and capital can move and real estate fortunes change. How different would a similar list be several decades ago or a century ago in the United States?

Rising real estate values in affordable markets make it harder to enter that market

Whether reading about rising real estate values in Elkhart, Indiana or Chicago area locations, this has an effect on who can enter the market as homeowners:

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But after prices soared during the COVID-19 pandemic, even the lower-priced homes became out of reach for many low-income households, according to a recent report from the Joint Center for Housing Studies of Harvard University…

In June 2020, a home slightly below the median price was comfortably in that range, selling for $196,450, Hanifa found.

But one year later, a home that was 80% of the median price would sell for $220,562, meaning even lower-priced homes were no longer affordable for low-income buyers.

The loss of affordability was not limited to Chicago. Hanifa found low-income families could afford a home in just 20 of the country’s 100 largest metro areas in 2021, down from 39 the year before…

The hot housing market has had a trickle-down effect on neighborhoods such as Garfield Park, Humboldt Park and Belmont Cragin, he said. As buyers have been priced out of more expensive neighborhoods, they begin looking at a lower or middle-income neighborhoods where they can make offers over asking. Then residents of those neighborhoods can’t afford the homes for sale.

Rising home values are often viewed very positively. Those who own homes can benefit from the increase in prices without much work of their own. Over time, homeowners hope prices go up and they can get a strong return of investment at a sale.

But, this data is a reminder of the flip side of those same rising prices. If prices go up faster than other factors including accessing mortgages and rising incomes, those who want to enter the housing market – and reap the benefits of increasing real estate values – have a harder time doing so.

This dynamic is recognized in particularly expensive real estate markets. When people discuss Manhattan, San Francisco, Seattle, Los Angeles, and a few other locations, people know there is a limited or nonexistent cheaper market for homeownership. This does not come up as often in cheaper markets, often in the Midwest or South, where prices are not as high and there are more options. If prices increase there as well to beyond what lower-income residents could afford, then what happens?

My quick takeaway: the need for affordable housing is great all over the place. If Americans continue to think that homeownership is a laudable goal, there is a lot to do to help make that possible for all.

A denser suburbia in California and the rest of the United States

The single-family home is the most important feature of American suburbs. What happens when conditions change and pressures lead to more multifamily housing units and denser housing in suburbia? From California:

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In June, as Ms. Coats told me about the house and the neighborhood from the doorstep of her bungalow, she gazed toward a fresh foundation that had entombed the back half of Lot 118 in concrete. Over the next few weeks, a construction crew erected a two-story building that filled in a green rectangle from the Clairemont Villas brochure. A few feet away, the original four-bedroom house was loudly gut-renovated into a pair of apartments.

When the workers head to their next job this month, they will leave what amounts to a triplex rental complex on the type of lot that in the seven decades since Ms. Coats’s family moved in had been reserved for single-family houses. It’s part of a push across California and the nation to encourage density in suburban neighborhoods by allowing people to subdivide single-family houses and build new units in their backyards…

In the vast zone between those poles lie existing single-family neighborhoods like Clairemont, which account for most of the urban landscape yet remain conspicuously untouched. The omission is the product of a political bargain that says sprawl can sprawl and downtowns can rise but single-family neighborhoods are sealed off from growth by the cudgel of zoning rules that dictate what can be built where. The deal is almost never stated so plainly, but it is the foundation of local politics in virtually every U.S. city and cuts to the core of the country’s deepest class and racial conflicts…

“It doesn’t fit.” “It’s adding people.” “We don’t want that here.” “There’s other places for that.” “We just want to keep our neighborhood like it is.” “They want to push us out and tear our houses down.” “Parking.” “Parking.” “Parking.”

Several quick thoughts on these changes in many suburban communities:

  1. Where exactly this density will happen will be fascinating to watch. Will it happen in wealthier suburban communities or will they be able to keep it at bay? Inner-ring suburbs are often already more familiar with such density but this is less common in suburbs further from the big city.
  2. The housing pressure is acute in California but is not so clear or as well publicized in many other locations. If this works in California, where else does it show up?
  3. The NIMBY concerns cited above will be vocally shared again and again. The appeal for many single-family home owners is the space between neighbors, relatively lots of room for parking, and not feeling like the neighborhood is crowded.
  4. How much are #1-3 above linked to another long-term pattern in suburbia: race and exclusion? Homeowners will say it is about protecting their properties – particularly their property values, which single-family home zoning is intended to do – but it is also about who is able to live in the neighborhood and community.
  5. The addition of units and people to existing single-family home neighborhoods is a different approach to denser suburbia than creating larger-scale “surban” projects that some would find desirable near suburban downtowns or in large-scale redevelopment.

Housing appraisals reflect existing racial inequalities in housing

A new published sociology study connects housing appraisals and race:

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For decades, research has shown that houses in predominantly Black neighborhoods have been generally appraised at lower values than houses in majority-white neighborhoods. This is true even when comparing housing stocks that have the same characteristics (age, square footage, number of rooms, etc.) and neighborhoods of equal socioeconomic status.

The new study finds that the racial composition of a neighborhood was an even “stronger determinant” of a home’s appraised value in 2015 than it was in 1980, to Black homeowners’ increasing disadvantage. Analyzing reported home values, Howell and Korver-Glenn found that the race appraisal gap has doubled since 1980: The difference in average home appraisals between neighborhoods that are majority-white and those that are predominantly Black and Latina was $164,000 in 2015, up from about $86,000 in 1980.

Rather than explaining the racial inequity as a vestige of historic segregation, the study finds more culpability in a method used to calculate appraisals today, the “sales comparison approach,” which determines a home’s appraised value by looking at the prices of other similar homes that were recently sold from the same neighborhood. The real estate industry sees this as a race-neutral way of appraising homes so that it doesn’t run afoul of fair housing laws, and it is one of the key criteria used for determining property values. But what makes this method problematic, according to the study, is that it basically grandfathers in racist home pricing that existed before fair housing legislation.

In other words, if an appraiser is calculating  the value of a home in a Black neighborhood by comparing it to houses recently sold around it, then chances are she is comparing it to other Black-owned houses that, because of the legacy of segregation, have handicapped values in the market compared to similar homes in white communities appraised at higher prices. The unfairly valued prices of homes in Black neighborhoods before the 1970s thus serves as the baseline for how homes are appraised and priced today. While the Fair Housing Act and Community Reinvestment Act forbade practices like redlining and denying mortgage loans based on race, they did nothing to readjust housing prices in segregated neighborhoods after they were passed.

In other words, past decisions and actions valued homes in white neighborhoods more than homes in black neighborhoods because of racism. Today, appraisals that typically compare homes in like neighborhoods perpetuate those different homes values. The system carries on these inequities even if no appraiser is intentionally racist; the way things are done continues the patterns set decades before.

There is another question here as well: what exactly are appraisals and housing values based on if they contingent on factors like race and not just on the characteristics of the home? Is there inherent value in a particular configuration of home traits – say a three bedroom, two bedroom home with a two car garage – or is the value completely dependent on what society says it is? I know the market is involved and the head of an international appraisal association is quoted later in the article cited above talking about supply and demand. But, if supply and demand says some homes are worth more because of the people who own them and the people in the neighborhood, this does not exactly sound like a desirable “free market.”

Flipping houses stats – up then Great Recession then up then down again – and questions

How many houses have been flipped in the United States in the last fifteen years? Here are some of the stats:

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In the first three months of 2020, 7.5% of homes sold in the United States were flipped, according to a June report from real estate research firm ATTOM Data Solutions. That’s the highest rate since 2006 and a jump from 6.3% at the end of 2019.

Home flipping rates had dropped drastically in 2007 and began to gradually recover in 2010. The number of flipped homes sold in a quarter peaked around 100,000 in 2005, and while it was on the rise in recent years, a decline began in the second quarter of 2019. In the first quarter of 2020, 53,705 single-family homes and condos were flipped, according to the report.

Profit margins have also dropped since 2019, hitting the lowest return-on-investment since 2011. After plummeting with the national economy between 2006 and 2008, profit margins on flipped homes grew at a steady rate until 2017. But since then, return-on-investment has been on a decline.

Still, it’s too soon to fully grasp how the coronavirus pandemic will impact the house flipping market through 2020 and beyond, ATTOM chief product officer Todd Teta said in a statement.

Flipping homes is by now a well-known process due to TV shows and personalities plus its spread throughout the United States. Yet, alongside other phenomena featured on HGTV and among certain groups (such as tiny houses), it can be hard to know how widespread a phenomena is.

Not surprisingly, these stats suggest flipping homes is connected to broader economic conditions: flipping increases when property values are high and repairs to a home can pay off in a sale. When times are tough and property values stagnate or even drop, there is less money to be made in flipping homes.

In the data above, it would be helpful to see how the national trends compare to patterns in particular places. Does flipping work in the hottest markets where prices are already high (limiting who can flip)? What about Rust Belt communities in good and bad times? Suburbs? Urban neighborhoods? I would guess there is a lot of variation across communities.

It is also worth considering what happens to the housing stock in places where flipping does or does not take place. If flipping happens, older housing stock gains new life. If it does not, do these homes simply keep sliding into disrepair?

Finally, this article starts with an example of a family involved in a flipping business but says very little about the role of small flipping businesses or more corporate operations. Even if flipping activity declines during tougher economic times, does it present opportunities for some to buy up properties to flip later? How do the profit margins differ across different kinds of flippers? Are smaller firms or family-owned flippers viewed more favorably by communities than corporate entities?

Housing prices up during COVID-19

During COVID-19, few people are looking for homes – and even fewer are selling:

The median home price rose 8% year-over-year to $280,600 in March, according to the National Association of Realtors. While buyer demand has softened and sales fell 8.5% that month from the prior month, the supply of homes on the market is contracting even faster, recent preliminary data shows…

What’s more, many sellers have been reluctant to cut prices. Only about 4% of sellers cut their prices in the week ended April 25, down from 5.7% during the same week last year, according to Realtor.com. ( News Corp, parent of The Wall Street Journal, operates Realtor.com.)…

Total listings of homes for sale, meanwhile, have hit a five-year low, while the median listing price was up 1% from last year at $308,000, Redfin said.

The housing market has been undersupplied for years. During the pandemic it may get worse. There were 1.5 million units for sale at the end of March, NAR said, down 10.2% from a year earlier. Homeowners are waiting to list their houses, real-estate agents say, because they have decided not to move or they are worried about letting buyers into their homes during a pandemic.

It will be interesting to see how long this holds up given the rapid spike in unemployment. How many people will be in a position to buy or sell in the coming months? And how long will it take for housing markets to return back to pre-Covid levels of activity?

Beyond prices, which matter to many homeowners who want to do everything they can to keep property values going up, there are additional big issues at play. One is noted above: a lack of housing supply long-term, particularly in certain markets and in certain segments. Another is the possible effects on the mortgage industry. A third is what this does to the idea of housing when there have been two  major shocks to housing in the last fifteen years. A fourth is whether people decide they want to live in certain locations more because of health risks. Like other sectors of society, COVID-19 may expose or hasten problems with existing issues.

In other words, stay tuned.

Property massively misvalued by accident, consequences to come

Correctly entering property values into tax databases is an important task. When it goes wrong, lots of people might have to pay:

The 1,570-square-foot house built in 1978 on 2 acres in an unincorporated area of the county was recorded in 2019 tax rolls with a market rate value of more than $987 million and an overestimate of about $543 million in taxable value. In reality, the property should have only had a 2019 taxable value of $302,000, according to county property records.

That error — which the Wasatch County assessor explained possibly occurred when a staff member may have dropped their phone on their keyboard — has resulted in a countywide overvaluation of more than $6 million and revenue shortfalls in five different Wasatch County taxing entities.

The biggest impact was on the Wasatch County School District, unable to collect nearly $4.4 million already budgeted.

Wasatch County officials say they “deeply regret” the error and are reviewing policies and procedures to ensure it never happens again. But they’re also warning Wasatch County taxpayers they will likely see an increased tax rate over perhaps the next three years to make up for the lower amount collected in 2019.

Communities rely on correct property assessments to lead to paid taxes which then generate monies for local governments and services. If something goes wrong in that pipeline – here it was a wrong value which was not caught for months – then essential services may not be provided. This all happens in the background, making it essential infrastructure that like other public works do not often get recognized unless it goes really wrong.

One thought: could the software or databases have a built-in checker that would flag significant year-to-year changes? In this case, a significantly higher assessment one year could trigger a warning to check the numbers again.

A second thought: do we know anything about the correctness of entries in such databases? Are they 99% accurate, 99.9% accurate, 99.99% correct? Even at these high rates of accuracy, a few incorrect values could make a difference.

Altering mortgages to account for climate change threats

A new Federal Reserve report considers how the consequences of climate change might affect mortgages:

The housing market doesn’t yet factor in the risk of climate change, which is already affecting many areas of the U.S., including flood-prone coastal communities, agricultural regions and parts of the country vulnerable to wildfires. In California, for instance, 50,000 homeowners can’t get property or casualty insurance because of the increased risk to their homes.

Yet for now, no mortgage lender, portfolio manager or buyer of mortgages takes into account climate-induced floods, except to determine if a house sits in a 100-year floodplain at the time the mortgage is issued, said Michael Berman, a former official with the U.S. Department of Housing and Urban Development and former chairman of the Mortgage Bankers Association.

Once lenders and housing investors do start pricing in such risks, “There may be a threat to the availability of the 30-year mortgage in various vulnerable and highly exposed areas,” Berman wrote in a recent San Francisco Fed report. He predicts lenders could “blue-line” entire regions where flood risks are high — a reference to redlining, the practice of refusing mortgages to minorities…

Said Cleetus: “My biggest fear, honestly, is that the markets will get out ahead of our policies, and we see a situation where property values do start to decline, and small communities that rely on a lot of property tax revenue won’t be able to deal with it.”

It will be interesting to see who (1) pursues this as a competitive advantage and (2) how federal policy plays into this. In a quest to get ahead of the rest of the market, could someone come up with a unique mortgage for areas with more climate change risk? Discussions about whether federal money should be used in places prone to natural disasters has been going for decades (see Hurricane Sandy or discussions about resilient cities).

Much of the article focuses on how the lack of mortgages in certain areas would lead to decreased property values and then a downward spirals as communities would not be able to generate as much tax revenue. This could also work the other way: imagine communities where only the really wealthy can live because they do not need traditional mortgages. They could come in and gobble up real estate with lowered values. Either way, the result could be increased inequality in affected areas.

“Trophy ranches” may disappear with Baby Boomers

One segment of the luxury property market does not appeal to younger buyers or those who do not understand the appeal of a “trophy ranch”:

Decades ago, a generation of America’s wealthiest, raised on television shows like “Howdy Doody” and “The Lone Ranger,” headed west with dreams of owning some of the country’s most prestigious ranches. Now, as those John Wayne- loving baby boomers age out of the lifestyle or die, they or their children are looking to sell those trophy properties…

Jeff Buerger, a local ranch broker with Hall & Hall in Colorado, said there are more large trophy ranches on the market right now than he can recall in his nearly three decades in the business. There are about 20 ranches priced at over $20 million on the market in the state, according to a Wall Street Journal analysis of listings…

Unlike other sectors of the U.S. high-end real-estate market, ranches can’t fall back on international purchasers. Broker Tim Murphy said there is virtually no demand for ranches from international buyers, many of whom “don’t get it.”…

“The last wave of buyers was the baby boomers who fell in love with John Wayne and wanted that experience for themselves,” Mr. Buerger said. “Today, it’s more about conservation. You’re starting to hear more landowners talking about wildlife habitat enhancement and ecological work.” Other targeted groups include wealthy families from the East Coast or Silicon Valley.

I would guess this is not just about baby boomers: it is about broader conceptions of what is the ideal property if someone came into significant money. The implication in the story above is that media, particularly John Wayne films, created a desire for these locations. Presumably, other media depictions would fuel desires for other properties. Depending on the tastes and background of buyers, this could range from:

1. Pricey downtown condos or penthouses in the middle of urban action (whether in well-established wealthy neighborhoods or in up-and-coming places).

2. Suburban McMansions that offer a lot of space and unique architecture.

3. Traditional mansions with sprawling homes whose size and design imply old money (in contrast to the flashy yet flawed McMansions).

4. Impressive vacation homes right on desirable beaches.

Perhaps the trick of any of these is to try to ensure that there are future buyers for your property. If demand drops, your hot high-status property may not hold up as a desirable location for the long-term.

SimCity, Jane Jacobs, and real estate values near the High Line

In a recent walk along New York’s High Line, I was reminded of two competing claims about how parks enhance nearby land uses.

In SimCity’s take on urban planning, building a park was a good way to help adjacent properties. If nearby residential and commercial properties suffered from low property values – perhaps due to higher crime rates or locations near industry – building a park could help enhance their values. This seems to make intuitive sense: people like being near greenery and this land use can distract or suppress less desirable land uses.

Jane Jacobs, in contrast, suggests parks are not the automatic panacea some planners suggest. More important than simply having green or recreational space is having a steady mix of people flowing through and around the park. It is human activity that makes the park, not just green space. Indeed, negative activity can thrive and recreational space can easily become part of a dull or blighted area.

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In a simplistic take, the High Line seems to support both of these views. The conversion of an unused railroad line to a thriving park has enhanced nearby property values. The park is regularly filled with people – from tourists to local walkers to vendors – during much of the day. This is a success story for both the SimCity and Jane Jacobs school of urban planning.

Yet, how exactly such an urban space came about and has both positive (new development!) and negative (those same values limiting who can live nearby!) consequences is more than just plopping a park into an area that could use more development. If it worked this way, every city would have such a successful project.

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In a complex environment like Manhattan where land is highly prized and regulated, putting together such a project takes collective efforts spanning activists, residents, local officials, developers, and others who have an interest in this land and who may have competing interests. Property values may indeed be high and the park full but the long-term effects of this on the neighborhood and the city are harder to assess.