Thursday, March 22, 2018

Housing: Part 289 - The "Credit Bubble" and housing expansion

The mortgage boom in the 2000s was mostly facilitating purchases by qualified borrowers - mostly young professionals with high incomes.  The drop in homeownership since the bust has also been concentrated among those households.

The story of what actually happened was that mortgage lenders had found reasonable ways to lend to young, qualified borrowers with loans that had to be outside conventional norms, because housing markets in Closed Access cities are outside conventional norms.  That pushed prices in Closed Access cities up to levels that reasonably reflected the high rents that come from a persistent shortage of housing.  That triggered tactical selling by existing homeowners.  The aggregate effect of this activity was to lower the population of Closed Access cities as young households with high incomes were able to secure a more generous amount of housing in cities where the total amount of housing is relatively fixed.  That led to depopulation and out-migration.  The out-migration overwhelmed a few cities, like Phoenix and Las Vegas, and caused prices in those cities to spike.

Here are a couple of charts that marginally add to that story, both measuring population growth per new housing permit.

Nationally, we can see that, in terms of this measure, the housing boom was generally a return to normalcy after a decade of reduced housing permits.  The rate of new building during the 2000s was similar to the rate of building that occurred throughout the 1970s and 1980s.

Starting in 1989, there is housing permit data, by metro area.  In the more recent graph, we can see the story I described above.  Closed Access building had been repressed for years.  Throughout the 1990s, the number of new residents outpaced the number of new homes relative to national norms.  Residents were packing into the existing housing stock.  From the late 1990s to 2007, Closed Access households were able to expand their consumption of housing.  By 2005 and 2006, populations in those cities were actually decreasing.  These were generally well-off borrowers making initial steps toward expanding their real housing consumption toward something somewhat normal.

By this measure, if there was anyplace in the US that was overbuilding, it was the Closed Access cities.  But, obviously, they have never come close to overbuilding.  In fact, this apparent surge in homes was actually a surge of migration away from the Closed Access cities.

Much of that surge went to the Contagion cities, and the Contagion cities increased their building in response to it.  That surge in building also has been taken as a sure sign of overbuilding, even though it barely met the need for housing demanded by the new residents.

But, the Contagion cities generally have more population growth per housing permit than the US does in general.  There was a slight downshift in that measure during the boom, parallel with the rest of the country, but new residents per new home in the Contagion cities never dipped below the national average.

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