Thursday, August 25, 2016

Another Look at the Uneven Recovery of Home Prices Across US Metro Areas

by Daniel McCue
Senior Research
Since the downturn, home prices for the US as a whole have been undergoing a strong recovery and are now approaching their former peak from the mid-2000s. However, the recovery has been uneven across the nation’s metro areas. As of June 2016, median home prices in only about a third of all metro areas tracked by Zillow since 2005 (162 of 474) had regained their mid-2000s peak values. In some metros, home prices remain 20 to even 30 percent below past peaks. To get a picture of the extent to which markets differ, we can examine the recovery in home prices, see where prices stand in metros across the country, and consider the implications of the changes.

At the positive end, some metros have done far more than just recover, with home values rising above past peaks (Figure 1). A few of these metros are hot markets where home values have skyrocketed after substantial declines during the downturn. Examples include San Jose and San Francisco where median home values are now significantly above mid-2000s peaks, following significant declines in the late 2000s. Honolulu and Portland, OR experienced similar trends. However, these four metros are the exceptions, as the majority of metros with above-peak values have not seen particularly strong recent price appreciation and are mostly benefitting from their relatively minor price declines during the downturn. In fact, among the fifteen metros where current home values most exceed past peaks, five had total peak-to-trough declines of less than 3 percent. Five others had declines of less than fifteen percent, which was still well below the US nationwide peak-to-trough decline of 22.4 percent.
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At the other end of the spectrum, home values remain far below mid-2000s peaks in several metros, predominately located in the Southwest and Florida. These are areas that had the most severe price declines during the recessionsome declined in excess of 60 percentwhich results in home values that continue to appear depressed despite significant recent rates of appreciation. In fact, metro areas furthest from their former peak values include areas where home values have risen most sharply since the recession. For example, Modesto, California’s median home value has nearly doubled (up 92 percent) since its November 2011 low of $129,400, reaching $248,900 by June 2016. This makes it the metro with the largest percent increase from trough to current, but Modesto’s median home value is still 31 percent below the April 2006 peak of $362,100. This pattern holds true for a number of other metros in California, Florida, Arizona, and Nevada.

Having had a minimal downturn is perhaps the best indicator of whether or not a metro area’s current home values are back above mid-2000s peaks. The top thirteen metros with the smallest peak-to-trough declines in home values over the housing downturn are all fully recovered. These areas were mostly smaller metros located in the Southeast, Midwest, and upstate New York with a history of moderation in home prices. Conversely, the top 24 metros with the largest peak-to-trough declines in home prices during the downturn have uniformly failed to reach their past peak values as of June 2016. Indeed, among the twenty four metros with the largest decreases in home values during the downturn, none have fully regained their peaks. Outside of Detroit, these metros are exclusively located in the West (California and Arizona) and in Florida.

Metros such as Little Rock and Syracuse are at the top of the list relative to past peaks, but are these really the strongest markets for home values? Many areas with the steepest declines since the mid-2000s were also those with the largest run-ups in home values, and the net sum in many cases is still a significant net increase since 2000. Looking at home values relative to year 2000 instead of mid-2000s peaks, we find many of the metros with the highest appreciation since 2000 to be those where home values are still well below peaks from 2005 and 2006 (Figure 2). Meanwhile, many of the slow-growth metros where home values are highest when measured relative to peaks, such as Little Rock and Syracuse, have seen much lower net price appreciation over the longer period.
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There are several possible takeaways from this analysis:
  • The housing recovery has been uneven across metro areas. While home values in the US are approaching past peaks, two thirds of metro areas are still below past peak levels from the mid-2000s. 
  • Whether or not home values in a metro area have recovered to past peak levels depends on the size of the downturn in that metro. 
  • Metros with the largest downturns, as a group, are seeing high rates of appreciation in recovery, but the majority have not yet recovered big losses and are still below past peaks. 
  • Being below past peaks does not mean home values are low.  In metros where home values are currently furthest below mid-2000s peaks, home values are still well above levels from 2000.
  • In many of the metro areas that are still well below mid-2000s peaks, net appreciation in home values since 2000 has actually been greater than in areas currently well above mid-2000s peaks that have had more modest rates of appreciation.

Overall, this data appears to suggest a trade-off between risk and return playing out across metropolitan area home values in the US. The high levels of appreciation since 2000 in the highest-growth areas have come with extreme volatility and the need to ride out the downturn successfully. Indeed, one cannot discount the significant housing wealth lost with the downturns, and the fact that those benefitting from recent recovery in prices are not always those who lost out in the downturn. However, while they have received more modest appreciation in home values since 2000 relative to those in high growth areas, homeowners in low-growth areas have not missed out on the ability to build wealth through housing either. Perhaps for many, the moderation of downside in these metros makes their modest housing appreciation look more appealing.

Monday, August 22, 2016

State and Local Governments Take Action to Promote Affordable Housing

by Daniel McCue
Senior Research
Home prices are rising, rents are up, and units available for rent or sale are few and far between. Detailing these trends, our 2016 State of the Nation’s Housing report once again finds affordability concerns at the top of the list of US housing challenges, both in metropolitan areas and rural counties. But with assistance reaching just 26 percent of households that qualify for it, the federal response has not been able to keep up with the growth in low-income households in need of affordable housing. Faced with this challenge, states and municipalities are increasingly looking beyond federal programs to take whatever action they can to increase the supply of affordable housing.

So what are they doing? In a recent article posted on the Shelterforce Rooflines blog I look at how state and local governments—those who are most commonly tasked with implementing federally funded programs—are increasingly working independent of federal programs and using their own resources to increase the supply of affordable housing in their areas.

Thursday, August 18, 2016

Emerging Consumer Interest in Home Automation

 by Abbe Will
Research Analyst
Home automation is poised for significant growth with the rising prevalence of smartphone use, advancements in wireless technologies, and entrance of the millennial generation—the largest and arguably most tech-savvy generation to date—to the housing and home improvement markets. To better understand this emerging market segment, our Remodeling Futures program is undertaking research to measure the current and future size of this market, investigate the most promising technologies and services for homeowners, identify key players operating in the market, and explain homeowners' perceptions of the benefits and drawbacks to automating their homes.

A first look at homeowner attitudes and behaviors around home automation trends comes from a 2015 consumer survey by The Demand Institute. According to Joint Center tabulations of this survey data, of homeowners who said they were likely to do a home improvement project in the next three years, nearly half expressed excitement to incorporate more “smart home” technology into their homes, and nearly 30 percent reported that they are somewhat or very likely to install home automation products or features. About 29 percent of homeowners likely to remodel placed high importance on their homes having the latest technology, like built-in speakers, remote-controlled thermostats, electronic window coverings, etc. Another 44 percent said having the latest home technologies was somewhat important. Yet only 16 percent said that their current home could be described as already having the latest home automation technologies, which suggests a large gap in current home automation use and interest (Figure 1).

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Note: Provided examples of latest home automation technologies included built-in speakers, remote-controlled thermostats and electronic window coverings. Source: JCHS tabulations of The Demand Institute 2015 American Communities Survey: Consumer Interview data

Compared to homeowners who place little or no importance on their home having the latest automation technologies, those who place a lot of importance on home automation are younger, have higher incomes and home values, and live in more urban areas (Figure 2). These homeowners are also much more likely to be planning a home improvement project of any kind in the next three years—68 percent compared to 56 percent of those placing some importance on having the latest home technology and 44 percent for those placing little or no importance. Over half of homeowners who place a high level of importance on having high-tech homes and are likely to remodel in the coming years reported that they are somewhat or very likely to install home automation products or features (52 percent) compared to 28 percent of homeowners expressing some importance and only 10 percent of owners expressing no importance for having an automated home.

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Notes: Tabulations are of responses to the following question: How important is it to you that your home has the latest technologies, like built-in speakers, remote-controlled thermostats and electronic window coverings, etc., where 1=not at all important and 10=extremely important? Very important includes rankings of 8-10, not important includes rankings of 1-3.Source: JCHS tabulations of The Demand Institute 2015 American Communities Survey: Consumer Interview data.

There is a dramatic difference in attitudes toward home automation products and services by age of owner. Only 28 percent of homeowners age 65 and over who are likely to remodel in coming years expressed excitement to incorporate “smart home” technologies, compared to over two-thirds of owners under age 35 who either somewhat or strongly agreed with this sentiment. And where only 13 percent of homeowners age 65 and over reported being somewhat or very likely to install home automation products or features in the coming three years, almost 43 percent of owners under age 35 reported the same intent. A slightly higher share of owners age 35-44 expressed likelihood to install home automation improvements at 45 percent, but this share fell sharply for owners age 45-54 (30 percent) and age 55-64 (23 percent).

Although many homeowners are motivated to automate their homes, it is unclear how thoroughly they will act on their enthusiasm. According to a 2015 poll reported by The Demand Institute, homeowners may be hesitant to fully engage in home automation products and features because of high product costs, security flaws and glitches, and concerns for whether smart products will function as well as traditional home products. More research on the emerging home automation market will be shared in the forthcoming 2017 Improving America’s Housing report.

Thursday, August 11, 2016

Are Renters and Homeowners in Rural Areas Cost-Burdened?

by Sonali Mathur
Research Assistant
As our latest report and interactive map illustrate, housing affordability is one of the biggest challenges faced by owner and renter households in most metro areas across the US. However, maps that use metro areas to display the local-level story miss the fact that cost burdens are also a major concern in non-metro/rural areas and are severely high for millions of low-income rural households. To address this gap in visibility, we created a set of interactive maps (Figure 1) using 2010-2014 American Community Survey (ACS) estimates. In doing so, we found that housing cost burden rates in some rural counties are significant. We also learned that rural counties of the Northeast and west, that are adjacent to high-cost metros, have even higher cost burden rates than those in parts of the Midwest.

 (Click to launch interactive map; may take a moment to load.)

Housing cost burdens are particularly stark for rural renters. Indeed, fully 41 percent of all rural renters are cost-burdened (meaning they spend 30 percent or more of their income on housing), including 21 percent who are severely cost-burdened (spending 50 percent or more of their income on housing). Among owners, 22 percent are cost-burdened including nearly 9 percent who are severely cost-burdened. Overall, nearly 5 million rural households pay more than 30 percent of their monthly income toward housing and more than 2.1 million rural households spend more than half of their income on housing.

And cost burdens have been growing in rural areas (Figure 2). Since 2000, housing costs in rural areas have increased over 5 percent and one in every four rural households is now cost-burdened. Comparing burden rates from 2014 to those from 2000 in the maps above shows the increasing cost burdens in many rural areas over the last decade, including areas in and around the traditional Black Belt counties of the Southeast and areas in the west and Northeast that are contiguous to areas that had high cost burdens in 2000.

Source: JCHS tabulations of US Census Bureau, American Community Survey 2010-2014 and census 2000 for all non-metropolitan census tracts. 

Rural affordability issues tend to receive less attention due to a perception that housing costs are lower in rural areas, which is true as compared to metro areas. According to the 2013 American Housing Survey (AHS) the median monthly rent in metro areas is $800, while the median monthly rent in non-metro areas is $530. Monthly owner costs are also fully 43 percent lower in non-metro areas than in metro areas. However, low incomes and poverty are prevalent in rural areas. According to estimates from the American Community Survey, fully 15 percent of all households in non-metro area census tracts earn less than $15,000 annually and nearly 36 percent earn less than $30,000. Poverty is a widespread problem in rural areas, with 18 percent of population living in poverty compared to 15 percent in metro areas.

In addition to poverty and affordability, rural areas face several other major housing challenges. The share of housing stock that would be considered inadequate, as measured by the number of units lacking complete plumbing or a complete kitchen, is higher in non-metro areas. The share of units lacking complete plumbing is 4 percent in non-metro areas, compared to 2 percent nationally.

Among units in non-metro areas that lack complete plumbing facilities, 10.3 percent also have more than one occupant per room (compared to 8.2 percent in metro areas). This suggests that in non-metro areas there is likely to be overcrowding in the same units that lack adequacy. It is probable that the households facing affordability problems are dealing with it alongside other issues.

While it is true that cost burdens are high and a growing problem in most metro areas across the country, it is important to remember that non-metro areas also face increasing housing affordability issues, in addition to other housing-related challenges and should not be forgotten in policy discussions of a comprehensive approach to the escalating housing affordability problem.

Thursday, August 4, 2016

What Explains the Uneven Recovery in House Prices?

by George Masnick
Senior Research Fellow
Our latest State of the Nation’s Housing report identifies the upswing in house prices since the Great Recession as one of the bright spots in the overall housing recovery, but emphasizes that the increase has been uneven for different parts of the country. This is clear at the county level in a series of annual maps produced by the New York Fed, available back to 2009. In Figure 1, which uses CoreLogic data, states in the far west, Colorado, and Florida are seeing significant increases in home prices, while the picture is more mixed in the Northeast and Midwest.

Maps changes in home prices each month compared with prices one year earlier, by county, based on CoreLogic overall house price indexes. Source:

Greater depth on trends in house price indicators for 24 large cities using a different data source is available from The Economist in five interactive graphs. A longer time frame (going back to 1980), and additional information make The Economist graphs especially useful. In these (see Figure 2), the user is able to select various charts plotting 1980-2015 trends. Using the Zillow house price index, the charts show prices in real terms, the price-to- income ratio, the price-to-rent ratio, and the percentage change in prices. What is particularly useful is that trends in selected cities can be compared; the charts can be reconfigured by adding or removing individual cities and the user can change the start and stop dates by dragging quarterly date locators along the x-axis. This allows the user to focus separately on variability in price change during the pre-bust upswing, the Great Recession downswing, and the recovery. 

While differences in incomes and rents account for some of the variability in trends in the house price recovery among these 24 cities, we are unable to look at variability in trends in the supply and demand for housing in these cities. 

The Census Bureau recently updated their estimates of  county population growth and changes in the housing stock, so we can add this information to the price data. For the principal counties of the 24 cities included in The Economist charts, both population and housing stock change during the recovery have been quite variable. Table 1 presents the percentage change between 2011 and 2015 in population size, the size of the total housing stock, and the gap between these changes. The cities are sorted from high to low on the gap. Denver has the highest population growth (6.6 percent higher than housing stock growth during that period), and Detroit has the lowest (population growth 2.4 percent lower than housing growth). Also included in Table 1 is the percent increase in house prices between 2011q2 and 2015q2 drawn from The Economist interactive chart. I have ranked the house price increase in order to demonstrate that the tightest housing markets (those with the largest gap between population and housing stock growth) also tend to be those with the highest price increases. Similarly, those with the smallest (or negative) gap show the lowest price increases. There are several cities that are counter to this generalization, and I have highlighted three that deserve further comment.

Washington, DC has the second largest gap between population and housing growth, but ranks 17th in price increase during the recovery. During the boom in housing prices between 1998 and 2006, Washington, DC increased by 120 percent, from a median price of $229.4K to $505.5K. This compares to a 42 percent increase for the total US. Subsequently, the downturn between 2006 and 2011 saw DC’s median price decline by 36 percent, to $322.8K. But this is still over 40 percent higher than the 1998 value. The percentage rise in median price during the recovery is just above the US average at 11.5 percent. Still, the median home price of $360K in DC is now twice the national average – about the same as Boston and Seattle. Young adults who move to Washington to take government jobs and internships have heavily fueled the area’s recent population growth, but they are less likely to become homeowners and drive prices even higher.

Detroit, at the other extreme, has had negative population growth during the recovery, but the 6th highest percent increase in housing prices. However, Detroit’s price trajectory is somewhat unique. During the national run up in prices between 1998 and 2006, median home prices in Detroit increased only 4.1 percent – a tenth of the national average – from $172.6K to $179.6K. The Great Recession saw Detroit’s median price fall by more than half, to $83.3K in 2011. The recovery rise to $116.6K in 2015 still places the median price at just 59 percent of the 2006 value. The only reason the percentage rise since 2011 is a relatively high 39.9 percent is that the starting point is so low.

San Francisco is the third city that deserves further comment. While in the middle of the pack on the gap between population growth and housing growth, it ranks second in price increase during the recovery.  San Francisco has, by far, the highest median house price among those cities listed in Table 1. At $753.5K, it is $275K higher than San Diego, the next highest city, and over four times the national average. We would need to examine factors other than population growth or median income growth to account for the city’s unique position. Low vacancy rates, increases in income levels that fall well above the median, the high ownership rates of Asians (who make up a large share of San Francisco’s population), and perhaps even foreign ownership increases (similar to trends in New York City), would likely need to be considered.

With these caveats in mind, Table 1 makes a strong case for the gap between recent changes in supply and demand exerting a strong upward pressure on house prices. Except for DC, six of the top eight cities with the biggest gap rank in the top ten for percentage price increases. And except for Detroit, six of the bottom eight cities with the smallest gap are ranked in the bottom for price increases during the recovery. Houston and Dallas are both in the middle of the pack on price increases, despite being near the top of the list on population growth. The key here is that they also lead the 24 cities in growth in their housing stock. None of this should be surprising, of course, but it doesn’t hurt to remind ourselves of the overriding importance of the imbalance between population growth and housing stock growth in explaining trends in prices.