Monday, December 19, 2016

Housing: Part 195 - More on homeownership, income, and wealth

Here are a few more charts on homeownership from the Survey of Consumer Finance.

First, the mortgage debt and home values as a proportion of total assets.  For the lower income quintiles, debt is less important and home values are more important.  As incomes rise, homes comprise a smaller portion of total assets and households hold more mortgage debt.

This is just another way of repeating that the rise in mortgage debt was not a low income phenomenon.  On the other hand, changing home values have more of an effect on low income balance sheets, on average, than they do on high income balance sheets.

But, there is a caveat.  The second graph compares the relative changes in the value of homes, arranged by household income.  This shows how the housing price boom was concentrated at higher incomes.  When you look at home prices within each MSA, there are many MSAs with relatively little difference between low income and high income zip codes.  But, in the Closed Access cities, home prices in low income zip codes increased significantly more than in high income zip codes.

Yet, here we see the opposite pattern.  This country has segregated by income, so measures of the top income quintile are largely measures of Closed Access cities.  The 2nd income quintile is mainly a measure of non-urban incomes and home values.  The bottom quintile includes a lot of retirees and idiosyncratic households.  As I look at this a second time, I'm surprised by the sharp relationship.  Home values in the 2nd income quintile rose by less than 50%.  Homes for top decile families rose by nearly 150%.

The last chart shows homeownership rates by net worth.  I have pointed out that higher homeownership during the boom was among households with high incomes and young households.  Here we can see that among high net worth households, homeownership has always been nearly universal.  Credit access during the boom was mostly a way to increase ownership of households with high incomes but not as high net worth.

We can also see here how our fears of credit and our over-reaction, have led to mortgage markets that are very unfriendly to households without the means to make a large down payment.  The boom helped high income, middling net worth households.  The bust has hurt low income, middling net worth households.  And many households have been pushed to the bottom net worth quartile because they owned homes.


  1. "Home values in the 2nd income quintile rose by less than 50%. Homes for top decile families rose by nearly 150%."--Kevin Erdmann.

    Egads. That's an explosion at the top end. And ponder the home-mortgage interest tax deduction.

    I wonder if an even smaller bracket reveals more amplification?

    Here is a report from Nikkei Asian Review, btw:

    TOKYO -- Condominium prices are soaring in Beijing and Shanghai, making it virtually impossible for people without substantial funds or assets to obtain housing. Wealthier people, meanwhile, are enthusiastically snapping up residential units, adding momentum to the price rises.
    China could be shaken by another "revolution" if the gap between haves and have-nots remains unresolved. The Chinese government is considering introducing a fixed asset tax to address the problem.


    Now, I assume China's financial and home mortgage system has variations from the US, but I really don't know.

    My point is that land zoned for housing is said to be scarce in Beijing and Shanghai.

    There may be a global story here. As nations urbanize, housing becomes less affordable unless steps are taken not to cramp supply.

    Other random thought: In Australia there has been a housing price boom. There, home loans are recourse (!) and not tax deductible for owners. And still a price surge!

    Other random comment; Lord Adair Turner has pointed out that 80% of bank lending is on established real estate. In other words, huge amounts of capital are simply pouring into exiting real estate, not productive assets. That is what out banking system does today. Zoned real estate, btw.

    I think the globe's macroeconomists are really dropping the ball on this one. Endless jibber-jabber about the minimum wage, or what will probably be fidgets in international trade.

    Monetary policy, banks and property zoning? Oh, that.

    1. Interesting.

      I would expect that median Price/Rent wouldn't be that different in Australia compared to US, but that Price/Rent levels wouldn't rise with prices so much, since this would make the benefits to ownership somewhat less regressive. I wonder if that is the case.

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