How Do We Proactively Preserve Unsubsidized Affordable Housing?

by David Luberoff
Deputy Director

Robust land bank and land trust partnerships, long-term lease-purchase programs, and low-interest renovation loans with affordability requirements are three tools that policymakers and mission-driven organizations can use to get ahead of real estate price appreciation, according to Proactive Preservation of Unsubsidized Affordable Housing in Emerging Markets: Lessons from Atlanta, Cleveland, and Philadelphia, a new working paper jointed published by the Joint Center for Housing Studies and NeighborWorks® America. Written by Matt Schreiber, a Master of Urban Planning student at the Harvard Graduate School of Design who was a 2017 Edward M. Gramlich Fellow in Community and Economic Development, the paper draws on work done by public and non-profit entities in all three cities.

North Philadelphia (Credit: Tony Fischer/Flickr)

In those places, Schreiber notes, median house prices range from $60,000 to $250,000, which suggests that they have an ample supply of affordable units. However, housing in those markets actually remains out of reach for so many residents, whose incomes are not growing as rapidly as house prices, which, according to Zillow's Home Value Index, rose by 8-11 percent in 2017. Such increases, and the fact that prices rose in more than 90 percent of the zip codes in those three cities, led Schreiber to ask what policymakers and the leaders of mission-driven organizations could do to get ahead of real estate price appreciation and, in doing so, proactively preserve their city's stock of affordable housing.

Schreiber used a four-part methodology to answer this question. First, he identified emerging markets; those areas that have not yet experienced the price appreciation effects of gentrification, but are likely to do so in the near future because they are close to each city's central business district, anchor institutions, or its other already-gentrified areas. Second, he reviewed the housing stock in these "likely-to-gentrify" areas, which made it clear that most of the affordable housing in these places are unsubsidized units located in one-to-four unit buildings. Third, he interviewed local stakeholders and national experts to learn their views on promising ways to find the balance between improving the quality of the housing stock while preserving its long-term affordability for low-income residents.

Those interview informed the fourth and final step: identifying and assessing three strategies that may address this challenge: building stronger partnerships between local land banks and local land trusts, creating lease-purchase programs that make homeownership more accessible for people of modest means, and offering low-interest loans that help owners renovate unsubsidized affordable units in return for long-term commitments to keep those units affordable for many years to come. Taken together, he notes, these strategies can help maximize the efficiency of the limited resources available to preserve and develop affordable housing. Moreover, the experiences in the three cities suggest "it is possible for mission-driven organizations and policymakers to get ahead of gentrification and proactively preserve vulnerable, unsubsidized affordable housing for low-income residents."

Do State Income Taxes Affect Home Values?

by David Luberoff
Deputy Director

State and local governments account for about 40 percent of all tax collections in the United States, but federal taxes command most of the attention in academic literature. In a new Joint Center working paper, Nathaniel Hipsman, a doctoral student in economics at Harvard who also is a Joint Center Meyer Doctoral Fellow, tries to fill this gap by investigating the effect of state income taxes on home prices.

To do so, he uses Zillow data on housing costs in over 11,000 ZIP Codes going back to the mid-1990s. While these data don't cover the entire country, they do cover more than half of the nation's residents. Hipsman focuses most closely on house prices in the more than 500 ZIP Codes that cover areas on the borders between two states. Using the TAXSIM model developed at NBER, Hipsman considers, for each tax year, the total income tax bill (federal plus state) that the same household would face were they to live in another state. Analyzing relative changes in these tax bills over time allows him to estimate whether and how changes in state tax burdens affected home values.

At first glance, the data seem to indicate that notable changes in state tax rates (or differences in bordering states' tax rates) could have dramatic impacts on home values. One of Hipsman's models, for example, indicates that a one percent drop in taxes might cause as much as a five percent increase in home values. However, Hipsman cautions against making too much of that finding. "Ultimately," he writes, "the evidence is inconclusive; standard errors are large, and different specifications lead to different conclusions."

This inconclusiveness, he adds, shows that while border-pair studies, such as his analyses, can offer important insights about policies governing taxes and spending, the results of those findings should be carefully tested before they are used for policymaking. "Obtaining a good estimate" of how changes in taxes affect home values, he concludes, "is important of further study."

Taking it to the House: Our Most Popular Blogs of 2017

by David Luberoff, Deputy Director

As we turn the calendar to 2018, we took a moment to look back at the past year to see what were the most popular articles in our Housing Perspectives blog.  

The top five articles of 2017 were:

1. When Do Renters Behave Like Homeowners?
   In high-housing cost cities, renters and homeowners both oppose new residential developments proposed for their neighborhoods. (Written by Michael Hankinson, a Joint Center Meyer Doctoral Fellow)


2. Wait... What? Ten Surprising Findings from the 2017 State of the Nation’s Housing Report
   There were a number of surprises in our annual report, including the fact that fewer homes were built over the last 10 years than any 10-year period in recent history and that the homeownership gap between whites and African-Americans widened to its largest disparity since WWII. (Written by Daniel McCue, a Senior Research Associate at the Joint Center)


3. Are Home Prices Really Above Their Pre-Recession Peak?
   While nominal home prices were above their mid-2000s heights in 48 percent of the nation’s 951 local markets, in real dollars, prices reached their peaks in only 15 percent of those markets. (Written by Alexander Hermann, a Research Assistant at the Joint Center)


4. Projection: US Will Add 25 Million Households by 2035
   Revising previous estimates, the Joint Center now predicts that the United States will add 13.6 million households between 2015 and 2025, and another 11.5 million households between 2025 and 2035. (Also written by Daniel McCue)


5. Our Disappearing Supply of Low-Cost Rental Housing
   The number of units renting for $2,000 or more per month (in constant, inflation-adjusted dollars) nearly doubled between 2005 and 2015, while the number of units renting for below $800 fell by 2 percent. (Written by Elizabeth La Jeunesse, a Joint Center Research Analyst)

Far From Static, Rural Home Prices are Dynamic and Growing in Most of the Country

by Alexander Hermann

Research Assistant

While many believe that home prices in rural areas are largely stagnant, this is not the case, according to a new Joint Center analysis from the Federal Housing Finance Agency (FHFA). Rather, non-metro home prices are dynamic, highly variable, and growing—much like home prices for the nation as a whole.

Nationally, home prices grew significantly over the last half-decade, following years of decline in the aftermath of the housing crisis. But these broad indicators mask significant variation by region, market, and even neighborhood. While these trends were discussed extensively in this year's State of the Nation's Housing report and on our blog, those analyses focused almost exclusively on the roughly 62 million homeowners living within metropolitan areas, where 83 percent of the country's owner-occupied units are located.

But what about home prices in the largely rural, non-metro areas that are home to about 15 percent of the population? Due to limited data availability, these areas often are ignored in discussion about trends in home prices. A new Joint Center analysis of the FHFA House Price Index, which measures price changes from the sale, refinancing, and appraisal of the same properties, seeks to fill this gap. In particular, the analysis examined house prices for all counties outside of Metropolitan Statistical Areas (MSAs). (Metro-area counties are those that contain an urbanized area of at lease 50,000 persons plus any adjoining counties that commuting patterns show are economically integrated with their metropolitan neighbors.)

Several key findings emerge from this analysis, most notably:

• Rather than stagnating, home prices outside the metropolitan areas grew considerably between 2000 and 2016. In nominal terms, non-metro home prices grew 58 percent and real non-metro home prices grew nearly 15 percent. Moreover, by the fourth quarter of 2016, nominal non-metro and rural home prices were two percent above their pre-recession peak—the same as national home prices at the same point. However, when adjusted for inflation, home prices in non-metro areas were still 11 percent below their peak, which again, is somewhat similar to national patterns (Figure 1).

Note: The US non-metro index is a weighted-average of state non-metro HPIs, with each state's value weighted by its share of non-metro detached single family housing units. Real home prices are adjusted for inflation using the CPI-U for All Items less shelter. 

Source: JCHS tabulations of the Federal Housing Finance Agency, All-Transactions House Price Index.

• While significant, these increases were more modest than the gains experienced by the nation as a whole. Nationally, real home prices grew 23 percent in 2000-2016, about 8 percentage points more than prices in non-metro areas (Figure 2). The difference is largely due to the more modest cyclicality of non-metro home prices movements during and after the recession. In the immediate aftermath of the housing crisis, national home prices fell severely for several years before starting to rise steadily in early 2012. In contrast, home prices in non-metro areas were mostly stagnant from 2011 to 2014, and, compared to metro areas, have grown less quickly since. As a result, between 2012 and 2016, the percentage-point increase in non-metro home prices was greater than the percentage-point increase in statewide prices only in Alaska, Hawaii, Mississippi, Montana, and Nebraska.

Note: The US non-metro index is a weighted-average of state non-metro HPIs, with each state's value weighted by its share of non-metro detached single family housing units. Real home prices are adjusted for inflation using the CPI-U for All Items less shelter. 

Source: JCHS tabulations of the Federal Housing Finance Agency, All-Transactions House Price Index.

• Rural home price trends by state vary widely. While non-metro home prices within states generally change in ways that are similar to the broader state-wide trends, increases in rural areas did not always trail overall increases in their states (Figure 3). Rather, from 2000 to 2016, the increase in non-metro house prices actually exceeded statewide prices increases in 24 of the 47 states where at least some part of the state was not in an MSA. (Three states—Delaware, New Jersey, and Rhode Island—do not have non-metro areas.)
  
  The gaps were largest in North Dakota (13 percentage points greater), Nebraska (12 percentage points greater), South Dakota (11 percentage points greater), New Mexico (7 percentage points greater), and Louisiana (6 percentage points greater). In contrast, the increases in statewide prices most exceeded rural prices in coastal states, where prices in metropolitan areas have grown significantly. The gaps were greatest in California (26 percentage points), Hawaii (23 percentage points), Virginia (22 percentage points), Oregon (19 percentage points), and Maryland (18 percentage points).

• Non-metro home prices rose more slowly in the run-up to the housing crisis, and rarely fell as far in the aftermath. Between 2000 and 2007, real non-metro home prices increased by 28 percent, far less than the 41 percent increase for all single-family homes. However, in about half of the 47 states with non-metro areas, the percent increase for all single-family homes. However, in about half of the 47 states with non-metro areas, the percent increase in non-metro home prices exceeded states-wide home-price gains in the run-up to peak. After the crash, real national home prices fell below 2000 levels briefly in 2012, while non-metro prices remained about three percent above their 2000 levels. Moreover, this pattern held true in most states. In only 10 of 47 states were the recessionary-low home prices (relative to 2000) in non-metro areas lower than for the state overall.

• Unclear signals for the future. While this analysis shows that non-metro house prices generally follow national patterns, since the recession price growth in rural areas has been slower than in the nation as a whole. The homeownership rate in non-metro areas was also about 71 percent in 2015, nearly 9 percentage points higher than in metro areas. These differences held across racial and ethnic groups, as well as for low- and moderate-income households. Collectively, this indicates that these markets merit close attention in the coming years.

Are Home Prices Really Above Their Pre-Recession Peak?

by Alexander Hermann
Research Assistant

In 2016, national home prices not only rose for the fifth year in a row, they finally surpassed their pre-recession peak in nominal dollars, according to most national measures of home prices. However, as our new State of the Nation’s Housing report notes, when adjusted for inflation, home prices were still 9 to 16 percent below peak, depending on the measure used (Figure 1).



Figure 1. National Home Prices Now Exceed Their Previous Peak in Nominal Terms, But Not in Real Dollars

Note: Prices are adjusted for inflation using the CPI-U for All Items less shelter.

Source: JCHS tabulations of S&P CoreLogic Case-Shiller Home Price Index data.

Moreover, as our interactive maps show, changes in home price vary widely across the country and often exhibit strong regional patterns (Figure 2).

Figure 2. How Much Have Home Prices Changed?

Our interactive maps give users the ability to view price changes in 951 markets across the country over two time periods—since 2000 and since each area’s mid-2000 peak. Viewable markets include 371 Metropolitan Statistical Areas and 31 Metropolitan Divisions (derived from 11 additional metro areas), which together contain about 85 percent of that nation’s population, as well as 549 smaller Micropolitan Statistical Areas, which are home to another nine percent of the population.

The data indicate that nominal home prices were above their mid-2000s heights in 48 percent of all markets (454 total). These markets were largely concentrated in the middle of the country, the Pacific Northwest, and Texas.

However, in real dollars, prices reached their peaks in only 138 (15 percent) of all markets. Furthermore, while prices were above peak in only 10 percent of Metropolitan Statistical Areas and Metropolitan Divisions, they topped their peak in 17 percent of the smaller micro areas, which experienced less home price volatility over the last decade.

In contrast, real prices were still 20 percent below peak in about one-third of all markets, most located in areas hardest hit by the housing crisis, including Florida and large parts of the Southwest, Northeast, and parts of the Midwest.

There were notable differences in long-term patterns in areas where real prices remained well below their pre-recession peak. In many markets on both coasts—such as Miami, Washington, DC, and Sacramento—prices have risen significantly over the last several years and, in real terms, are now well above their levels in 2000. However, because prices in these areas rose significantly during the boom years and fell so sharply during the recession, the recent gains have left prices far below what they were in the mid-2000s.

In contrast, in some Midwestern and Southern markets—such as Detroit, Chicago, and Montgomery, Alabama—prices rose only modestly in the 2000s, dropped significantly during the recession, and have grown only slightly in recent years. Consequently, real prices in these areas were not only well below their peak levels from the mid-2000s, but remained below 2000 levels in many cases.

The uneven growth in home prices over the past two decades has led to increasing differences in housing costs. Illustratively, in 2000 the inflation-adjusted median home value in the 10 most expensive metros (of the country’s 100 largest metros) was about $350,000, about three times higher than the median value of homes in the 10 least expensive metros. But between January 2000 and December 2016, real home values in the ten highest-cost housing markets rose by 64 percent to about $574,000, more than five times the value of homes in the least expensive areas, which grew by only 3 percent, to $113,000.

A broader look at home prices further highlights these stark disparities. Nationally, real home prices rose 32 percent between 2000 and 2016. But home prices in 30 percent of markets (290 total) actually declined in real terms, including 28 percent of metro and 33 percent of micro areas, most of them in the Midwest and South. In the Detroit metro area, home prices declined 26 percent, the largest decrease among large metros. Prices also fell significantly in the Cleveland (22 percent decline), Memphis (15 percent decline), and Indianapolis (13 percent decline) markets.

At the opposite end of the spectrum, between 2000 and 2016 real median home prices rose by more than 40 percent in 153 markets (16 percent), most of them on the East and West Coasts. In fact, prices doubled in twelve markets, including the Honolulu metro areas, which saw 104 percent growth. Home prices also rose considerably in the Los Angeles (97 percent), San Francisco (84 percent), Miami (73 percent), and Washington, DC (62 percent) markets. While micro areas were more likely to be past their previous peak, the lower price volatility also meant they experienced less price growth since 2000, with only 12 percent of micros exceeding 40 percent growth.

Growing Demand and Tight Supply are Lifting Home Prices and Rents, Fueling Concerns about Housing Affordability

A decade after the onset of the Great Recession, the national housing market has, by many measures, returned to normal, according to the 2017 State of the Nation’s Housing report, being released today by live webcast from the National League of Cities. Housing demand, home prices, and construction volumes are all on the rise, and the number of distressed homeowners has fallen sharply. However, along with strengthening demand, extremely tight supplies of both for-sale and for-rent homes are pushing up housing costs and adding to ongoing concerns about affordability (map + data tables). At last count in 2015, the report notes, nearly 19 million US households paid more than half of their incomes for housing (map + data tables).

National home prices hit an important milestone in 2016, finally surpassing the pre-recession peak. Drawing on newly available metro-level data, the Harvard researchers found that nominal prices in real prices were up last year in 97 of the nation’s 100 largest metropolitan areas. At the same time, though, the longer-term gains varied widely across the country, with some markets experiencing home price appreciation of more than 50 percent since 2000, while others posted only modest gains or even declines. These differences have added to the already substantial gap between home prices in the nation’s most and least expensive housing markets (map).

“While the recovery in home prices reflects a welcome pickup in demand, it is also being driven by very tight supply,” says Chris Herbert, the Center’s managing director. Even after seven straight years of  construction growth, the US added less new housing over the last decade than in any other ten-year period going back to at least the 1970s. The rebound in single-family construction has been particularly weak. According to Herbert, “Any excess housing that may have been built during the boom years has been absorbed, and a stronger supply response is going to be needed to keep pace with demand—particularly for moderately priced homes.”

Meanwhile, the national homeownership rate appears to be leveling off. Last year’s growth in homeowners was the largest increase since 2006, and early indications are that homebuying activity continued to gain traction in 2017. “Although the homeownership rate did edge down again in 2016, the decline was the smallest in years. We may be finding the bottom,” says Daniel McCue, a senior research associate at the Center.

Affordability is, of course, key. The report finds that, on average, 45 percent of renters in the nation’s metro areas could afford the monthly payments on a median-priced home in their market area. But in several high-cost metros of the Pacific Coast, Florida, and the Northeast, that share is under 25 percent. Among other factors, the future of US homeownership depends on broadening the access to mortgage financing, which remains restricted primarily to those with pristine credit.

Despite a strong rebound in multifamily construction in recent years, the rental vacancy rate hit a 30-year low in 2016. As a result, rent increases continued to outpace inflation in most markets last year. Although rent growth did slow in a few large metros—notably San Francisco and New York—there is little evidence that additions to rental supply are outstripping demand. In contrast, with most new construction at the high end and ongoing losses at the low end (interactive chart), there is a growing mismatch between the rental stock and growing demand from low- and moderate-income households.

Income growth did, however, pick up last year, reducing the number of US households paying more than 30 percent of income for housing—the standard measure of affordability—for the fifth straight year. But coming on the heels of substantial increases during the housing boom and bust, the number of households with housing cost burdens remains much higher today than at the start of last decade. Moreover, almost all of the improvement has been on the owner side. “The problem is most acute for renters. More than 11 million renter households paid more than half their incomes for housing in 2015, leaving little room to pay for life’s other necessities,” says Herbert.

Looking at the decade ahead, the report notes that as the members of the millennial generation move into their late 20s and early 30s, the demand for both rental housing and entry-level homeownership is set to soar. The most racially and ethnically diverse generation in the nation’s history, these young households will propel demand for a broad range of housing in cities, suburbs, and beyond. The baby-boom generation will also continue to play a strong role in housing markets, driving up investment in both existing and new homes to meet their changing needs as they age. “Meeting this growing and diverse demand will require concerted efforts by the public, private, and nonprofit sectors to expand the range of housing options available,” says McCue.

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Live Webcast Today @ Noon ET

Tune into today's live webcast from the National League of Cities in Washington, DC, featuring:

Kriston Capps, Staff Writer, CityLab (panel moderator)
Chris Herbert, Managing Director, Joint Center for Housing Studies
Robert C. Kettler, Chairman & CEO, Kettler
Terri Ludwig, President & CEO, Enterprise Community Partners
Mayor Catherine E. Pugh, City of Baltimore, Maryland

Tweet questions & join the conversation on Twitter with #harvardhousingreport

Housing Recovery by Income in Two Metros: San Francisco and St. Louis

by Alex Hermann
Research Assistant

The increases in home prices that have occurred since the Great Recession not only vary across the nation’s metropolitan areas, they also vary within many metros as well. The San Francisco metropolitan area, where home values are now 16 percent above their pre-recession peak, and the St. Louis metropolitan area, where home values are still 10 percent below their pre-recession peak, illustrate these variations.

In both areas, median home prices in low-income ZIP Codes are less likely to exceed mid-2000 peaks than median prices in high- and moderate-income ZIPs. However, the regions vary when looking at the changes in house prices between 2000 and 2016. Over that time period, the percentage increase in median prices in the Bay Area’s low-income ZIPs was greater than the increases in high- and moderate-income ones. In contrast, the percentage increase in St. Louis’ low-income ZIP Codes was much smaller than the increase in that region’s high- and moderate-income ZIP Codes. (In this analysis, low-, moderate-, and high-income ZIP Codes have a median household income under 80 percent, between 80 and 120 percent, and above 120 percent of their state’s median income, respectively.)

Changes in home price also vary within both metros. For example, metropolitan San Francisco has had the eighth strongest post-recession recovery in home prices. As a result, median home values in San Francisco’s high-income ZIP Codes are about $1.18 million dollars while the median value in low-income ones are $586,000, more than three times the median price for the U.S. as a whole, which is $186,500.

However, home values in many of the region’s ZIP Codes are still below their pre-recession peak (Figure 1). In all, 31 of San Francisco’s 142 ZIPs, or 22 percent, have yet to regain their mid-2000 peaks, including:

• 50 percent (5 of 10) of low-income ZIPs
• 35 percent (12 of 34) of moderate-income ZIPs, and
• 14 percent (14 of 98) of high-income ZIPs.

Source: JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data

Most ZIP Codes that have not regained their peak median home values are located on the outskirts of Metro San Francisco, particularly in northern Contra Costa County. That area is home to 10 of the 14 high-income ZIP Codes where median prices have not exceeded their pre-recession peak as well as 8 of the 12 moderate-income ones and three of the five low-income ones. Most of the remaining ZIP Codes where prices are still below pre-recession peaks are in the urban areas south of Oakland along the East Bay, which includes many low and moderate-income ZIP Codes as well as two high-income ones.

Although prices in San Francisco’s low-income ZIP Codes are less likely to regain their pre-recession peaks, the trend is different when examining price changes since 2000. Overall, home values increased in all the region’s ZIP Codes. But on a percentage basis, the values in low-income ZIP Codes increased more rapidly than those in high-income areas (Figure 2).

JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data

The story is somewhat different in metropolitan areas that have not seen San Francisco’s rapid price appreciation, such as St. Louis, where home values in June 2016 were still 10 percent below their pre-recession peak. There, median prices exceeded their peaks in only 27 of 147 ZIP Codes, most of them located in the region’s urban core and suburban Madison County. (Figure 3). These unrecovered areas include:

• 1 of 35 (3 percent) low-income ZIPs
• 6 of 55 (11 percent) moderate-income ZIPs, and
• 20 of 57 (35 percent) high-income ZIPs.

JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data

Moreover, unlike San Francisco, prices in low-income ZIP Codes in St. Louis have grown only modestly since 2000 and have increased much less than those in high- and moderate-income ZIP Codes. In the run-up to peak, prices in low-income ZIP Codes grew only marginally faster than prices in high-income ZIPs. Additionally, the post-recession upturn in home values in low-income ZIPs lagged the increase in high-income ZIP Codes by nearly two years (Figure 4).

JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data

What to take away from this analysis? Overall, home values in high-income ZIP Codes have outpaced home-value gains in low-income ZIPs since the price peak of the mid-2000s. When taking a broader view, low-income ZIP Codes have performed as well as high-income ZIPs since 2000 in fast-appreciating markets like San Francisco, while in many lagging markets, like St. Louis, home value gains in high-income ZIPs have typically surpassed those in low-income ZIPs. Furthermore, though income levels are important they are not determinative. The geographic patterns also underscore the fact that trends in home values are also a function of features such as density and proximity to the central city.

These relationships, and others, will be discussed in a forthcoming Joint Center working paper on home value trends since 2000.

High-Income ZIP Codes Benefit Most from Housing Recovery

by Alexander Hermann
Research Assistant

Although home prices nationally have been on the upswing since early 2012, the increases have not only been uneven across metropolitan areas but are more likely to have occurred in the most affluent parts of each metropolitan area, according to a new Joint Center analysis of Zillow home value data.

Most notably, home values in high-income ZIP Codes that are home to their region’s more affluent residents are now about 1 percent higher than their post-2005 peak, while values in low-income ZIP Codes—which increased dramatically in the early 2000s—are still about 12 percent below their pre-recession peak. Moreover, home values in moderate-income ZIP Codes are still about six percent below their pre-recession peak (Figure 1). (In this analysis, low, moderate, and high-income ZIP Codes have a median household income less than 80 percent, between 80 and 120 percent, and above 120 percent of the state median income, respectively.)

Source: JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data.

Moreover, home prices in low-income ZIP Codes are lagging both in recovered metropolitan areas as well as in metros yet to regain their peak price. Specifically, in recovered metros, 83 percent of high-income and only 65 percent of low-income ZIP Codes had median home values matching or exceeding their peak, a full 18-point difference. In metro areas within 15 percent of peak, but still below, 22 percent of high-income ZIP Codes have recovered relative to 9 percent of low-income ZIP Codes. In metropolitan areas furthest from peak—by one measure, those that remain hardest hit—only a sliver of low-income ZIPs (5 of 699) have recovered, compared with 37 of 899 high-income ZIP Codes (4 percent). In total, across the nation, 37 percent of high-income ZIP Codes have recovered, versus only 23 percent of low-income ZIP Codes (Figure 2).

Source: JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data.

Extending the analysis to 2000 demonstrates why high-income ZIP Codes have been more likely to recover. Low-income ZIP Code home values increased tremendously during the housing boom, but a similarly harsh decline has made recovery more difficult, and has significantly weakened low-income ZIP Code home value gains since 2000 relative to high-income ZIPs. At peak, the median home value in low-income ZIP Codes more than doubled (increasing 101 percent) from January 2000 (Figure 3). The peak median value in high-income ZIP Codes increased only 82 percent. However, the post-recession decline wiped out a large share of the relative gains low-income ZIP Codes had made. In these ZIPs, median home values (as a percent of the January 2000 home value) dropped nearly 65 percent. In high-income ZIP Codes, the drop was 38 points. This precipitous decline, and a lagging recovery, have given high-income ZIPs a narrow edge in median home value increases overall. As of June 2016, median home values in high and low-income ZIPs were 84 and 76 percent, respectively, above their 2000 median home value.

Source: JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data.

The overall trend varies somewhat when breaking ZIP Codes down into recovered and unrecovered metros. In recovered metros, median home value gains in high-income ZIP Codes have steadily outpaced those in low-income metros over time, sharply accelerating during the recovery (Figure 4). In unrecovered metros (which include nearly 70 percent of ZIP Codes in our sample), home values in low and high-income ZIP Codes have drawn about even in the long run (Figure 5). Figure 5 also shows that the metros worse off relative to past peaks are those where low-income ZIPs saw substantial home value gains relative to their initial home value and large declines during the recession. In these unrecovered metros, ZIP Codes in both categories have median home values about 79 percent above their 2000 values.

Source: JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data.

Note: Percentage growth derived from nominal dollars.

Source: JCHS tabulations of Zillow Home Value Index data and ACS 2014 5-year data.

In an upcoming post, we’ll take a closer look one US metro that illustrates the uneven price recovery within its own ZIP Codes – San Francisco.

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: https://www.newyorkfed.org/home-price-index/index.html

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. 

Source: http://www.economist.com/blogs/graphicdetail/2015/11/daily-chart-0

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 17^th 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 6^th 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.  

Update on Homeownership Wealth Trajectories Through the Housing Boom and Bust

Daniel McCue

Senior Research
Associate

The housing crisis and ensuing Great Recession of the late 2000s resulted in millions of homeowners losing their homes to foreclosure and millions more losing substantial amounts of housing wealth as home prices plummeted. These substantial financial losses have raised important questions about the appropriateness of policies to encourage homeownership as a wealth building strategy for low-income and minority households. To study this issue, in 2013 the Joint Center published a paper entitled “Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? (Was it Ever?)” as part of a 2013 symposium held to reexamine the goals of homeownership and explore lessons learned from the housing crisis.

Since the original paper was completed, additional years of PSID data have become available that allow us to extend the original analysis through 2013, which we have now done in a new JCHS working paper.

The original paper looked specifically at the question of whether homeownership, particularly for low-income and minority families, was an effective means of building wealth during the most tumultuous housing market in recent memory. Studying the 1999-2009 time period, the paper found that even during a time of excessive risk taking in the mortgage market and extreme volatility in house prices, large shares of owners successfully sustained homeownership and created substantial wealth in the process; that renters who became homeowners and sustained it through the period had some of the largest gains in wealth; and that renters who transitioned to ownership but failed to sustain it ended the study period with no less wealth than when they started. Yet while the results were positive in supporting the benefits of sustained homeownership, the study only covered the time period through 2009, which was the latest year of data available at the time, and therefore did not capture the entirety of the housing downturn and related fallout. Indeed, according to the CoreLogic National Home Price Index, house prices did not reach bottom until March of 2011 and much of the foreclosures and distressed exits from homeownership resulting from the downturn occurred well after 2009.

In this new 2016 paper, Update on Homeownership Wealth Trajectories Through the Housing Boom and Bust, with the extended timeframe through 2013 more thoroughly capturing the extent of the housing downturn and its accompanying effects on families’ wealth accumulation, our updated analysis upholds the bottom-line result from the earlier paper: that homeownership was associated with significant gains in household wealth, even when viewed across the tumultuous housing crisis period of 1999-2013. However to sustain gains in household wealth from homeownership, we found it is critically important to sustain homeownership itself. 

Source: Table 4b, working paper

Despite the continued declines in home values and continued high levels of foreclosure beyond 2009, the extended analysis found that homeownership was still associated with sizeable gains in household wealth in 1999-2013 for those who sustained homeownership through 2013, just as the original analysis found for those who owned through 2009. Among those who bought a home after 1999 but had returned to renting by 2013, the net wealth of the typical household in 2013 was back to what it was for these households in 1999, which was similar to the median net wealth of households among those who rented the entire time. As in the earlier study, households who began the study period as homeowners but ended as renters experienced the most significant declines in wealth. The key differences in the updated analysis was that the annual gains in wealth associated with owning a home declined in magnitude and the share of both Hispanic and low-income households that were able to sustain homeownership declined to 60-61 percent.

Note: Values shown are modeled marginal effects in constant 2013 dollars.

Source: Table 6b, working paper

But while those who maintained homeownership experienced meaningful gains in wealth, the relatively high shares among some groups that failed to sustain owning does raise the question of whether homeownership is a risk worth taking. On the other hand, the fact that renters accrued little wealth over the same period points to the limited opportunities that low-income households have outside of homeownership for building a nest egg. Taken together the study’s findings of both the remarkably and persistently low wealth levels of the typical renter and the potential for wealth accumulation when homeownership is maintained underscore the need for policies both to support sustained homeownership as well as to help renters find ways to build wealth outside of homeownership.