Looking at concentrated income in the United States by county

Looking at median household income by county shows some interesting regional patterns in the United States:

There are more than 3,000 counties in the U.S. Of the 75 with the highest incomes, 44 are located in the Northeast, including Maryland and Virginia. The corridor of metropolitan statistical areas that runs from Washington, D.C., through Baltimore, Philadelphia, New York and Boston includes 37 of these top-earning counties (where the median family takes home at least $75,000 a year). Zoom in to the region, and it shows a kind of wealth belt unmatched even on the West Coast.

Poverty is similarly concentrated in the American South. Seventy-nine percent of the poorest counties in the country (where the median family makes less than $35,437) are located in the South..

Relative to 2007, 33 percent of all U.S. counties saw statistically significant increases in poverty by 2012 (across all age groups), deepening the challenges in places that had been struggling even before the recession. Over this same time period, however, one part of the country in particular saw an actual increase in median incomes, and it wasn’t the traditionally wealthy Northeast corridor.

It was the Upper Great Plains. Statistically significant increases in median income, from 2007-2012, are shown in green.

The maps help make these regional patterns clear. But, I wonder how much looking at patterns obscures some important information:

1. Counties are relatively big pieces of land. While income by county tells us something, it also covers up important variation within counties. Take a wealthy county: it doesn’t mean everyone is doing so but just that the median is higher than other places. Think of Manhattan where there are plenty of wealthy people but not everyone there is working on Wall Street or buying luxury condos in new buildings. It would be a lot harder to show on a single map but having 25th and 75th percentile information for each county would help show the relative distributions.

2. These figures aren’t weighted by population. A number of those wealthy Northeast counties have lots of plenty. In fact, perhaps the headline is understated when the population is accounted for. In contrast, the end of the article looks at a few counties where median incomes actually increases – the Great Plains with their new found gas wealth – but there aren’t many people there.

3. It is misleading to have a headline about wealth and talk about wealth in the article when the actual measure being used is median income or poverty levels based on income. Actually, looking at wealth and people’s full assets would likely show even wider gaps between counties.

To reiterate: county-level data can gives us a sense of broad patterns or clusters but may not be the best way to think about income changes in the United States.

Looking at inequality in NYC by translating wealth differences into building heights

It can be difficult to visualize inequality but here is an innovative way of doing so: imagining wealth as buildings in New York City.

In his most recent visualization project, the Pittsburgh-based artist and researcher re-imagines what the city’s skyline would look like if building height were a direct reflection of a neighborhood’s net household wealth. “I was inspired to create this project after standing atop Mt. Washington in my hometown of Pittsburgh and looking at the Pittsburgh skyline,” he explains. “I thought to myself, ‘What if you could actually see inequality?’ This relatively even landscape would look much different.”

Lamm, who is responsible for other viral visualizations like Normal Barbie, translated Esri’s map of median household net worth in New York City (based on 2010 Census data) into the bright green 3-D bars you’re looking at. Every $100,000 of net worth in a section on Esri’s map equals one centimeter in height on Lamm’s visualization. So if one section (which appears to consist of multiple blocks) had a net worth of $500,000, Lamm’s rendering would measure 5 cm high. Similarly, if another section had a net worth of $80,000, the green would appear at a much flatter 0.8 cm.

Of the maps/visualizations available here, the best one is probably the first one that shows much of Manhattan from the northwest looking southeast.

Choosing to visualize wealth rather than income is a strategic choice. Much talk about inequality involves income but this may be the wrong metric. Income is more about short-term access to money but wealth may be more important for longer-term outcomes (purchasing a house, etc.) and the wealth differences between groups are quite a big larger. For example, the differences in wealth between the top 5% and the rest of America are astounding as are the differences between whites and blacks as well as Latinos.

Additionally, singling out New York, particularly Manhattan, is an interesting choice. The differences here are indeed stark. Manhattan is the seat of the financial sector. But, few places in the United States would have this much wealth inequality.

More Chicago area houses purchased with cash

In perhaps another sign of the bifurcated housing market, more and more buyers are purchasing Chicago area homes with cash:

Some people actually pay cash to buy a house. In fact, it happens more than you’d probably expect—in the first half of 2013, cash paid for 34 percent of all homes bought in the Chicago area, according to data that RealtyTrac released exclusively to Chicago. For the month of June, cash bought 30 percent of local homes, which was even with the national average in data the company released last week.

Many of those cash buyers were investors, either the big corporate type or the smaller individual type. But real estate agents and others say the number of end-users buying homes for their own use and paying cash has risen steeply this year. (I could not find data that breaks down which cash buyers are end users and which are investors.)

And the reasons this is happening more?

-They want to be the sharpest competitor in a multiple-bid situation. A cash offer is “the cleanest offer,” Whelan says. It assures the seller that the deal won’t fall through for lack of financing, and it typically offers a faster closing because it eliminates the wait for the mortgage process.

-They know that sellers sometimes will accept a lower-priced cash offer over a higher-priced offer that will be financed, to avoid the hassle.

-They may believe that the value of the home they want is above what an appraiser would calculate based on comps from the recent past. Paying cash instead of getting a mortgage leaps over a mortgage lender’s requirement of an appraisal, Kawabata points out.

-Although it’s been easing recently, jumbo loans—mortgages for more than $417,000 in the Chicago area—were difficult to get for the past few years so buyers of higher-priced homes had been lining up cash for the home purchases they wanted to make this year.

In other words, if you have the cash on hand, it can give you a leg up on big real estate purchases. But, this option isn’t available to most people. So, it seems like this helps those with wealth to continue to rack up the wealth through larger and/or more valuable real estate portfolios.

The effect of neighborhoods on persistent inequality between races

A new book by sociologist Patrick Sharkey highlights how neighborhood conditions contribute to persistent inequality by race:

Put more bluntly:

Even if a white and a black child are raised by parents who have similar jobs, similar levels of education, and similar aspirations for their children, the rigid segregation of urban neighborhoods means that the black child will be raised in a residential environment with higher poverty, fewer resources, poorer schools, and more violence than that of the white child.

This might not seem to make sense: education gains have been fairly substantial, so shouldn’t income and wealth follow? The problem is that whites are more likely to lock in gains over generations. Blacks are more likely to be in a higher income centile than their parents than whites (55/50), and less likely to be in a lower one (44/49). But they’re more likely to be in a lower income quintile (53/41) and less likely to be in a higher income quintile (35/45). Whites are more likely to inch down and leap up the socioeconomic ladder; for blacks, vice versa.

By way of explanation, Sharkey points to the work of Northwestern sociologist Mary Pattillo on the black middle class: “When white families advance in economic status, they are able to translate this economic advantage into spacial advantage by buying into communities that provide quality schools and healthy environments for children. An extensive research literature demonstrates that African Americans are not able to translate economic resources into spacial advantage to the same degree.” In the real world, this is the reality for middle-class neighborhoods like Chatham, which struggle to maintain their economic and residential base while buffeted by violence creeping in from neighboring communities.

This research counters the idea that decreased educational differences necessarily leads to reduced wealth and spatial differences. There are other important factors at work, including the spatial context. Education is not a silver bullet that solves all of the issues related to poverty.

This would seem to line up with research on wealth differences between whites and blacks (see Black Wealth/White Wealth by Oliver and Shapiro). Even if blacks have made educational gains, wealth is partly generational. Wealth really helps with buying a home in middle- and upper-class neighborhoods that then offer better schools, environments, and social capital. And this homeownership gap is still large in the first quarter of 2013 (Table 16): 73.4% for whites, 43.1% for blacks, 45.3% for Hispanics, and 54.6% for all other races.

You can get a no-money-down mortgage – if you are really wealthy and put your investments up as collateral

No-money-down mortgages have been blamed for helping bring about the recent economic crisis but they can still be obtained – if you have the assets to obtain one.

It’s 100% financing—the same strategy that pushed many homeowners into foreclosure during the housing bust. Banks say these loans are safer: They’re almost exclusively being offered to clients with sizable assets, and they often require two forms of collateral—the house and a portion of the client’s investment portfolio in lieu of a traditional cash down payment.

In most cases, borrowers end up with one loan and one monthly payment. Depending on the lender and the borrower, roughly 60% to 80% of the loan can be pegged to the home’s value while the remaining 20% to 40% can be secured by investments. On a $2 million primary residence, for instance, the borrower could get a $2 million loan, which would require a pledge of assets in an investment portfolio to cover what could have been, say, a $500,000 down payment. The pledged assets can remain fully invested, earning returns as normal, without disrupting the client’s investment goals.

While these affluent clients may be flush with cash, this strategy allows them to get into a home without tying up funds or making withdrawals from interest-earning accounts. And given the market’s gains combined with low borrowing rates in recent years, some banks say clients are pursuing 100% financing as an arbitrage play—where the return on their investments is bigger than the rate they pay on the loan, which can be as low as 2.5%. Some institutions offer only adjustable rates with these loans, which could become more expensive if rates rise. In most cases, the investment account must be held by the same institution that’s providing the loan.

These loans also provide tax benefits. Since borrowers don’t have to liquidate their investment portfolios to get financing, they can avoid the capital-gains tax. And in some cases, they can still tap into the mortgage-interest deduction. (Borrowers can usually deduct interest payments on up to $1 million of mortgage debt.)

Theoretically, this is how no-money-down mortgages could work since only signing up wealthier clients helps limit the losses a bank might incur if they default on the mortgage. Yet, it also sounds like another financial option that is only available to the wealthy who might even be able to make money by taking out a non-money-down mortgage. In other words, is this something that only helps the rich get richer (and possibly bigger houses)?

When banks say these loans are safer, how much safer? I suspect part of the safety of these mortgages is that there are relatively few new ones being offered to wealthy Americans. It would be interesting to hear about some cases where this has worked out well or not worked out as planned.

Highlights from the “Illinois’s 33%” poverty report

A new report from the Social Impact Research Center, “Illinois’s 33%,”  looks at poverty in Illinois. Here are a few highlights:

1. Something I did not realize: the preamble to the Illinois Constitution mentions “eliminat[ing] poverty” (p.1).

“We, the People of the State of Illinois…in order to provide for the health, safety and welfare of the people; maintain a representative and orderly government; eliminate poverty and inequality; assure legal, social and economic justice; provide opportunity for the fullest development of the individual; ensure domestic tranquility; provide for the common defense; and secure the blessings of freedom and liberty to ourselves and our posterity—do ordain and establish this Constitution for the State of Illinois.”

2. The report is not just about poverty; it is also about people in near-poverty. The income thresholds for this are here (p.5):

This methodology of measuring people with low incomes or near poverty seems to be growing. The Census reports the median household income in Illinois is $56,576.

3. There is definitely some geographic disparity in these figures. Here are the numbers for the Chicago region which clearly shows wealthier and less wealthy counties and Chicago neighborhoods (p.7):

I did not see any calls for metropolitan approaches to poverty. In the Chicago region, it would be difficult to deal with a particular problem, say affordable housing, in just Chicago or a few of its neighborhoods without cooperation and input from others in the region.

4. The report has more figures and possible solutions in five areas that could help people move out of poverty: employment, education, housing, health & nutrition, and assets (p.3-4, 15-17).

Economic crisis hits black middle class particularly hard

The economic crisis may have hurt a lot of Americans but it didn’t necessarily hurt everyone equally. Recent reports suggest the black middle-class was particularly hard hit.

The Pew Charitable Trusts’ Economic Mobility Project recently released a report projecting that 68 percent of African-Americans reared in the middle of the wealth ladder will not do as well as the previous generation.

In August, the National Urban League’s State of Black America 2012 report found that nearly all the economic gains that the black middle class made during the last 30 years have been wiped out by the economic downturn…

From 2005 to 2009, the average black household’s wealth fell by more than half, to $5,677, while white household wealth fell 16 percent to $113,149, according to the Pew Research Center. In 2009, 24 percent of black households had no major assets other than a vehicle, compared with 6 percent of their white counterparts.

“For every $20 whites have in wealth, blacks have just $1,” said Paul Taylor, director of Pew’s Social and Demographic Trends project. “And in many cases, households get a boost because they inherit wealth from parents and grandparents. Blacks for most of history haven’t been able to accumulate that type of wealth.”

Mary Pattillo, a Northwestern University professor and expert on the black middle class, said this segment of the population is so fragile because it’s disproportionately lower middle class.

This is a reminder that the “American Dream” can be quite fragile. Even if the idea of being middle-class is quite powerful in America, tough economic times which lead to job less or housing issues can erase hard-earned material gains. Since whites had on average higher levels of wealth compared to blacks going into the economic crisis, they were able to better weather the storm.

Argument: use of the term McMansion in Australia usually about snobbery

An Australian commentator argues the use of the term McMansion in his country is generally out of snobbery:

IS THERE any more snobbish word in the Australian vocabulary than ”McMansion”? This nasty term describes the big, new houses out in suburbs with names like Caroline Springs and Kellyville. McMansions, their nickname suggests, are the McDonald’s of housing – they’re super-sized, American and mass produced.

Australians build the largest new houses in the world. The average size of a new freestanding home is 243 square metres. That’s 10 per cent larger than the average new American home. Naturally our big houses have critics. Sustainability advocates say McMansions are bad for the environment. Yet there’s more going on here. Because even the most high-brow academic critiques of McMansions seem to focus less on the houses and more on the people who live in them…

That sort of sneering contempt is not uncommon. The word ”McMansion” is usually deployed not to appraise a type of house, but an entire way of life. It is all about culture – the inner city world trying to understand their strange, alien suburban cousins…

Even if you don’t put much stock in income statistics, the size of our houses is – by itself – evidence that Australia is well off. Prosperity is about more than GDP data. Money isn’t everything. Anybody who has lived crammed into too few rooms knows living standards and adequate space are closely related. In rich Australia it’s understandable that many people desire extra living and storage space.

This seems to bleed through in some of the American use of the term as well.

However, I’m not sure we should go the route this commentator suggests and welcome McMansions because they are a sign of our wealth and some individuals want to purchase them. While some do look at McMansions and McMansion dwellers with disdain, McMansions are also not inherently good. They are somewhat indicative of our the resources available in the United States and Australia (though wealthy societies could choose to spend this wealth in other ways) but there are certainly trade-offs in building McMansions, just as there are in building other kinds of structures. McMansions reflect our cultural values: we emphasize private space (even as family size is shrinking), the need for homes that are more than just dwellings (whether they are meant to impress or are to fit out psychological needs), and a suburban lifestyle which is an adaptation between city and country, is based around driving, gives homeowners a little bit of land and space, and is linked to ideas about the American (or Australian?) Dream and “making it” in life. We can discuss whether policies should limit McMansions but it seems that both the United States and Australia have made the choice to allow builders and homeowners to pursue larger homes.

Should oil reserves be used to build developments in “glittering cities”?

A commentator looking at Venezuela and the use of the money from its oil reserves suggests oil money should be spent on development in “glittering cities”:

While oil has ushered in spectacular construction projects for glittering Middle Eastern cities, including the world’s tallest building in Dubai and plans for branches of the Louvre and Guggenheim museums in Abu Dhabi, it’s brought relatively meager changes to Venezuela, which holds the world’s largest proven oil reserves.

Nearly 14 years after President Hugo Chavez took office, and despite the biggest oil bonanza in Venezuela’s history, there’s little outward sign of the nearly one trillion petrodollars that have flowed into the country.

It would be interesting to hear experts talk about whether the urban development projects in the Middle East are really the best use of money from natural resources. On one hand, the cities look impressive. Dubai is now on the map partly because of the Burj Kalifa. American universities and European museums want to locate in such new cities. The buildings are all so new and exciting. At least in appearance, these cities can now compete with the best big cities in the world. Going further, some would argue cities are the engines of innovation and growth so spending money there on infrastructure and facilities could go a long way. Similarly, glittering cities might the result of financial and economic power.

On the other hand, money spent on buildings and cities is money that could be spent on education, health care, the development of human capital, and sustainable projects that will outlive the oil reserves. Cities may only be as good as its workers and residents who can contribute to social, economic, and political life. Could glittering cities simply be facades that mask a host of underlying social ills papered over by mineral wealth? Money may be spent in urban centers and yet residents in slums and in more rural areas may be essentially forgotten. More broadly, does a city necessarily have to be “glittering” to be successful? Indeed, are there cities in the world that are clearly successful and offer a high standard of living but are not glittering such as the Scandinavian capitals?

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

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.