Housing Recovery is Underway, But Not for Everyone Eric Belsky August 2013 Dallas, TX
Housing Markets Have Corrected In Significant Ways Both price and quantity reductions have occurred Even after price rebound over past year, national median existing home price to per capita income ratio is still near levels not seen since 1968 Steep production cuts brought national 10-year total housing production well below 10-year average trends
New Construction Over 10 Years Is Now at Its Lowest Point Dating Back to at Least 1974-1983 Completions and Placements (Millions) 18.0 17.0 16.0 15.0 14.0 13.0 12.0 Median 10-Year Total 1974-2012 Note: Data go back to 1974. Source: JCHS calculations of US Census Bureau data Lowest, Pre-2010 (1988-97) 2003-2012
Despite A Slowdown in Overall Household Growth in the 2000s, Falling Homeownership Rates Lifted Renter Household Growth to Record Heights 18 16 14 12 10 8 6 4 2 0 Net Change in Households (Millions) 1950s 1960s 1970s 1980s 1990s 2000s Owners Renters Source: JCHS tabulations of US Census Bureau, Decennial Censuses.
With Strong Renter Household Growth, Rental Vacancy Rates Have Been Falling Since 2010 14.0 Rental Vacancy Rate (Percent) 13.0 12.0 11.0 10.0 9.0 8.0 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 Overall Single-Family 10 or More Units Note: To reduce volatility and seasonality inherent in the series, rates shown are 4-quarter rolling averages. Source: US Census Bureau, Housing Vacancy Surveys via Moody s economy.com. 5
Nominal Rents are Rising Across the Country Percent Rent Change 2012:2 to 2013:2 Decline (Up to -3.7%) Less than 2.5% Increase 2.5-4.9% Increase Increase of 5% or More (Up to 7.8%) Notes: Estimates are based on a sample of investment-grade properties. Source: JCHS tabulations of MPF Research data.
The Housing Recovery Has Finally Reached the Single-Family Market Affordability (low interest rates and lower house prices) has created the necessary conditions Steady if slow job growth, low inventories of homes for sale, and a restoration of home price appreciation have created the sufficient conditions Rebound in sales remains weak in unit terms but significant in percentage terms 7
Homeownership is at its Most Affordable On Records Dating Back to 1971 240 220 200 180 160 140 120 100 80 60 Affordability Index 1971Q1 1972Q1 1973Q1 1974Q1 1975Q1 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 US - NAR JCHS-Dallas JCHS-Houston JCHS-San Antonio Notes: Historic metro-level NAR affordability index is not published. JCHS approximated the index mirroring NAR methodology. Payment assumes the effective interest rate from FHFA for that quarter, a 30-year fixed-rate mortgage, and a 20 percent downpayment. To mirror NAR, median family income was used. Median family income not available for 20012Q2-2013Q2; 2012Q1 income was used in these quarters. Values are 4-quarter rolling averages to smooth seasonal effects. Sources: NAR quarterly median house price; FHFA effective interest rate; Moody's Analytics Estimates of US Census Bureau Current Population Surveys and American Community Surveys median family income. 8
7,500 Existing Home Sales Showing Signs of Sustained Improvement, While New Home Sales Claw Back Single Family Home Sales (Thousands, SAAR) 1,500 6,000 4,500 3,000 1,500 0 2000 2001 2002 2003 2004 2005 2006 2007 Existing Homes [Left Axis] 2008 2009 2010 2011 2012 2013 New Homes [Right Axis] 1,200 900 600 300 0 Note: Data through June 2013 Sources: US Census Bureau; Site: http://www.census.gov/const/www/newressalesindex.html National Association of Realtors. Site: http://www.realtor.org/research/research/ehsdata
Inventories of Homes on the Market Have Dropped Sharply 3,500 3,000 2,500 2,000 1,500 1,000 500 Single Family Homes for Sale (Thousands) 600 500 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Existing Homes [Left Axis] New Homes [Right Axis] 0 Sources: US Census Bureau, New Residential Sales; National Association of Realtors, Existing Home Sales via Moody s Economy.com.
With Sales Picking Up and Inventories Falling, House Prices Have Found a Floor 12-Month Change in House Price Index (Percent) 15 10 5 0-5 -10-15 -20-25 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 CoreLogic (All Transactions) CoreLogic (Excluding Distressed) FHFA Case-Shiller 20 Source: CoreLogic, FHFA, and S&P Indices. 11
12 10 Though Mortgages Delinquency Rates Have Fallen, They Remain Elevated 8 6 4 2 0 Seriously Delinquent Rate (Percent) 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 US Texas Source: Mortgage Bankers Association: All Loans - Seriously Delinquent Rate, (%, NSA) 12
Housing Affordability Problems: Widespread, Worsening, and Creeping Up the Income Scale 90 80 70 60 50 40 30 20 10 0 Share of Households with Cost Burdens (Percent) < $15,000 $15-30,000 $30-45,000 $45-60,000 $60-75,000 > $75,000 Real Household Income 2001 2009 Percentage Point Change 2001-9 Notes: Cost-burdened households spend more than 30 percent of pre-tax income for housing. Income ranges are in 2009 dollars, adjusted for inflation by the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, 2001 and 2009 American Community Surveys. 13
Dozens of Hard Hit Counties (With One in Five or More Units Vacant) Are Still Reeling Vacant Housing Units in Distressed Neighborhoods (Thousands) COUNTY, STATE (METRO AREA) Wayne, MI (Detroit) Cook, IL (Chicago) Harris, TX (Houston) Cuyahoga, OH (Cleveland) Baltimore, MD (Baltimore) Fulton, GA (Atlanta) Philadelphia, PA (Philadelphia) Orleans, LA (New Orleans) Marion, IN (Indianapolis) Shelby, TN (Memphis) Hamilton, OH (Cincinnati) Maricopa, AZ (Phoenix) Clark, NV (Las Vegas) St. Louis, MO (St. Louis) Allegheny, PA (Pittsburgh) Franklin, OH (Columbus) Jackson, MO (Kansas City) 0 20 40 60 80 100 Note: Distressed neighborhoods have vacancy rates of 20% or higher, excluding seasonal, recreational and occasional-use units. Source: JCHS tabulations of US Census Bureau, 2007 11 Five-year American Community Survey.
Nearly All People Under Age 45 Expect to Buy in the Future % Who Expect to Buy a Home at Some Point in the Future 100 90 80 70 60 50 40 30 20 10 0 Under 25 25 to 34 35 to 44 Source: Drew and Herbert, 2012. Based on Fannie Mae National Housing Survey 2010-2012.
100 90 80 70 60 50 40 30 20 10 0 But Underwriting Has Tightened Dramatically Share of Freddie Mac and Fannie Mae Originations (Percent) 100 90 80 70 60 50 40 30 20 10 0 Share of FHA-Insured Mortgages by Dollar Volume (Percent) 2001 2011 2006 2007 2008 2009 2010 2011 2012 Higher Risk Medium Risk Credit Score Lower Risk Below 640 640-679 680-850 Notes: Higher (lower) risk loans are to borrowers with credits scores under 690 (above 750) and have loan-tovalue ratios above 85% (below 75%). FHA data exclude records with no credit score information. Sources: Amherst Securities; US Department of Housing and Urban Development.
Finally Rebounding After an Unprecedented Slowdown, Household Growth Still Below Trend 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Change in Households (Millions) 2006 2007 2008 2009 2010 2011 2012 2010-20 JCHS Low 2010-20 JCHS High Note: JCHS low (high) projection assumes that immigration in 2010 20 is 50% (100%) of the US Census Bureau s 2008 middle-series population projection. Sources: US Census Bureau, Housing Vacancy Survey; JCHS 2010 household growth projections. 17
Housing Recovery is Underway, But Not for Everyone Eric Belsky August 2013 Dallas, TX
SUPPLEMENTAL SLIDES 19
Price-to-Income Ratios Still Near Early 1990s Levels Even in Hardest-Hit States 220 200 180 160 140 120 100 80 60 Price-to-Income Index (1990:4 = 100) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (e) United States Arizona California Florida Nevada Texas Notes: Price-to-income ratios were calculated as the housing price index over median household income. House price values are from the fourth quarter. 2012 incomes were estimated using Moody s Analytics Income Forecast applied to CPS income data. Sources: FHFA Purchase-Only Home Price Index (NSA); US Census Bureau, Current Population Survey; Moody s Analytics Income Forecast
Despite Recent Price Gains, Hardest-Hit Metros Remain Far From Peak Trough-Current Rebound Percent Off Peak (May2013) NV-Las Vegas 27% -51% FL-Miami 20% -42% AZ-Phoenix 35% -41% FL-Tampa 17% -39% MI-Detroit 31% -33% IL-Chicago 15% -30% CA-San Diego 24% -28% CA-Los Angeles 24% -28% MN-Minneapolis 22% -24% NY-New York 5% -23% CA-San Francisco 43% -23% TX-Dallas 14% At New Peak CO-Denver 17% At New Peak Source: S&P Case/Shiller HPI, NSA
The Share of Renters with Affordability Problems Has Doubled in the Last 50 Years 50 40 30 20 10 Shares of Cost-Burdened Renter Households (Percent) 0 1960 1970 1980 1990 2000 2010 Moderately Burdened Severely Burdened Notes: Rent includes tenant-paid utilities. Moderately (severely) cost-burdened renters pay 30-50% (more than 50%) of pre-tax household income for housing. Renters with zero or negative income are assumed to be severely burdened, while renters not paying cash rent are assumed to be unburdened. Source: JCHS tabulations of US Census Bureau, 1960-2000 Decennial Censuses and 2010 American Community Survey.
Since the Peak in US Employment, Total Job Growth in Texas Has Outpaced that of the US 110 Total Nonfarm Employment Relative to Jan 2008 Level (Percent of Jan-2008 level) 105 100 95 90 85 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Texas US Source: JCHS tabulations of BLS total nonfarm employment. 23
22 The Echo-Boom Generation Is Even Larger Than The Baby Boom Was At Similar Ages Population (Millions) 20 18 16 14 12 10 5-9 10-14 15-19 20-24 Age Baby-Boom Generation in 1970 Echo-Boom Generation in 2005 Notes: Members of the baby-boom generation were born 1946-1964. Members of the echo-boom generation were born 1981-2000. Source: US Census Bureau, Population Estimates.
Generations Following Baby Boomers Are Large and More Diverse 90 80 70 60 50 Number of People (Millions) Echo Boom Baby Buster Baby Boom Note: Members of the baby-boom generation were aged 46-65 in 2011, the baby bust generation aged 26-45, and the echo boom aged 6-25. Source: JCHS tabulations of US Census Bureau, Population Projections for July 1, 2012. 50 40 30 20 10 0 Minority Share of Population (Percent) Echo Boom Baby Buster Asian/Other Black, Non Hispanic Hispanic Baby Boom
Minorities Will Drive Household Growth Households Household Growth, 2010-20 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% ACS 2011 White, Non Hispanic Black, Non Hispanic Asian / Other Hispanic 0% JCHS Low Projection Sources: JCHS 2010 Household Growth Projections and US Census Bureau, 2011 ACS