Thursday, October 25, 2018

Housing: Part 327 - More on Adam Ozimek's regressions and the wrong presumptions

I looked at some more data regarding the previous post that I think might help fill out my point.

To review, Ozimek finds that cities that have the strongest recoveries in building are the places where prices are also rising the most. So, he concludes that supply constraints aren't the cause of rising prices.  And, furthermore, the places with less building are places that had bigger bubbles.  He writes:
Instead of being correlated with rapid price growth, weak permitting is correlated with how big the housing bubble was in a metro area. This is clear in the data, where the permitting recovery is higher in areas that had smaller peak-to-trough declines in house prices during the bubble bursting.

My counternarrative is that we didn't have a bubble in housing supply.  The lack of urban supply has always been the problem, and was the core cause of the housing bubble.  And, I argue, that the main factor driving housing markets since 2007 has been extreme credit tightening that was imposed because of the incorrect presumptions about what caused the bubble.

Note that both narratives could explain the fact that cities with the deepest price collapses also have seen weaker supply recovery.  That could happen because they had oversupply or because the credit bust hit them harder.  Ozimek's finding only seems conclusive because my counternarrative is currently considered inconceivable and so nobody feels required to disprove it.

Ozimek follows the convention here when he says "weak permitting is correlated with how big the housing bubble was in a metro area".  This presumption is so deeply and broadly held, he can be forgiven.  But, he hasn't shown that at all.  He has shown that weak permitting is correlated with how big the housing bust was, and he is assuming that the bust was inevitable.  This is question begging, and it is universally practiced on this topic.  In fact, it is the reason we had a crisis in the first place, because as the crisis developed, the universal reaction was, "Well, this was inevitable."  But, it wasn't inevitable.  And, we can review the data to test the assumption.  Nobody else has done that because the assumption was canonized before the crisis even happened!

Here, I am using data that doesn't exactly match Ozimek's.  I am using some data I have previously downloaded on the largest 20 MSAs, going up to 2015.  But, it gives the same basic results as Ozimek's does, so I hope you will forgive me for having saved myself the time of gathering more extensive data.

As I mentioned in the previous post, supply constraints are still central, because the cities with the most recovery in permits, by Ozimek's measure, are the cities with the weakest building markets.  They have recovered to pre-crisis levels because their pre-crisis levels were extremely low.  Here is a scatterplot comparing the long-term annual permitting rate (permits/capita) to the ratio of the permitting rate in 2014-2015 / 2002-2003.  (In the previous post there is a similar graph with MSA income on the y-axis. It looks very similar, because building has recovered in cities with high incomes and constrained housing.)

Among the top 20 MSAs, there are two groups.  The Closed Access cities are the cities where economic potential is sharply limited by housing access, so they are building at rates similar to boom levels, and slightly higher than the 2002-2003 building levels.

Among other cities, there is no pattern.  Basically, building rates everywhere else have been cut in half (with variance) whether they built 0.005 homes per capita annually before the bust or 0.015 homes.

This is because a credit shock was imposed on the country, and it doesn't affect the Closed Access cities so much because they still permit fewer homes than any other city, and money is flowing into those markets in a desperate bidding war for access to prosperity.  That was our problem in 2000, 2005, 2015, and today.

But, let's back up a step.  What about Ozimek's comment that price declines during the bust are a signal of the size of the housing bubble?  We can test that with this data.  There is some relationship between rising prices during the boom and declining prices during the bust because of the brief price spike in the Contagion cities.  But that's about it.

I have created a measure of housing permits issued in 2004-2005 compared to 2002-2003.  This is a measure of how much extra building happened during the peak bubble years.  A regression between that measure and the MSA price change from 2005 to 2012 shows an insignificant relationship.

What about longer-term building?  A regression between the price change from 2005 and 2012 also has an insignificant relationship with building rates from 1996 to 2005.

We can also compare the decline in permits and the decline in prices.  The decline in permits from 2005 to 2012 is highly correlated with the decline in prices over that period.  Both quantities and prices declined together.  But, there is no relationship between declining permits from 2005 to the 2012 trough or to 2015 and price increases from 1999 to 2005.

The only way Ozimek can connect the price collapse to the bubble is by assuming it.  But, we don't have to assume it.  We can directly measure it.  And there is no evidence in this data that either high prices or high quantities before the crisis are associated with declining permitting rates.

Looking at all of these measures, the regression model that provides the best correlation with permitting rates in 2014-2015 compared to 2004-2005 has three variables that are all statistically significant.  In order of significance (t-stat in parentheses).

  • (4.80) The decline in MSA home prices from 2005 to 2012.  For each 1% (log) price decline, there was a decline of about 1.6% (log) of permits in 2014-2015 compared to 2002-2003.

  • (3.61) The increase in building permits in 2004-2005 compared to 2002-2003.  For each 1% (log) increase in the rate of permits during the boom, there has been a 1.3% (log) increase in permitting rates in 2014-2015.  That is not a typo.  The relationship is positive and significant.  This mirrors the construction numbers I recently reviewed.  MSAs that had increased rates of building at the peak of the boom are MSAs that have continued to have strong local markets.  (There is also a positive, but not significant relationship between permit growth in 2004-2005 and price appreciation from 2012-2015.)

  • (-2.60) The long term rate of building from 1996-2005.  For each additional permit/100 residents annually from 1996 to 2005 a city issued, the ratio of permits in 2014-2015/2002-2003 is 39% (log) lower.  But, as we see in the graph above, this really consists of the Closed Access cities, where permits have recovered, and the rest of the country, where permits are at half the 2002-2003 level and there isn't much relationship between previous building rates and the current rate.
There was no housing bubble.  There was a housing supply bust in the Closed Access cities that continues to this day.  In a misguided attempt to lower housing prices in the face of that housing supply bust, we have done nothing to change the dynamic of the Closed Access cities, where rates of building continue to peak at very low levels while prices rise.  And, the rest of the country is saddled with a credit bust that has decimated home prices, rates of building, and longstanding natural patterns of migration.  The cities that were harmed were not cities that were engaged in a random bout of speculation.  They were cities whose generous building and growth traditions were nonetheless overcome by a wave of housing refugees until we killed the market with macro-level bloodletting.

But, this account was assumed out of the story before the story was even written.  Practically every piece of analysis that has been written about the crisis has been based on a reading of the evidence that depends on assumptions that were wrong.

PS: MSA Income is an important factor I should have looked at before.  Income is related to the other variables in two important ways.  First, migration pre-crisis was strongly tilted toward cities with lower incomes.  That is the perversity at the heart of my research.  So, as I explained above, permitting rates are dominated by the Closed Access cities where few permits are issued in cities with high incomes, and that explains why the long term rate of building is a significant variable.  Once I add income, that variable becomes insignificant.

Income also relates to the decline of home prices after the crisis.  Since the credit bust was imposed based on borrower characteristics, buyers with low incomes were hardest hit, and thus, cities with low incomes were hardest hit.  This isn't as strong as the pre-crisis migration relationship, but it is strong enough that adding income to the regression with permit recovery also makes the 2005-2012 price decline insignificant.

A regression of permit recovery from 2003 to 2015 against just two variables - Income and the increase in building permits from 2002-2003 to 2004-2005 has an r-squared of 0.69.  Income is highly significant (t-stat = 5.68) and the level of MSA income 1% (log) higher is correlated with a log 2% increase in permit recovery.  For each 1% (log) increase in the rate of building in 2004-2005, permit recovery has been 1.0% stronger (t-stat = 2.77).  Again, this is the opposite sign of the bubble story.  More building in 2004-2005 is correlated with more building in 2015.

PPS: Oops.  Sorry.  I had an error in the excel worksheet.  (The error doesn't effect the regression described above, but the price collapse does have a correlation with building permit recovery.)  Income is actually highly correlated with the price collapse from 2005-2012.  An MSA with income 1% higher was correlated with 0.6% less of a price collapse.  Even with that relationship, the price collapse is correlated with permit recovery.  So, a regression with three variables - Income, the increase in permits from 2002-2003 to 2004-2005, and the price collapse residuals after accounting for the effect of income - has an r-squared of 0.79, and the significance of both income and permitting rates are increased compared to the two variable regression.  The coefficients are:
Income: 2.08
2004-2005 permitting rate: 1.32
Price Collapse: 1.02

So, stronger permit recovery is related to higher income, growth in the rate of building in 2004-2005, and less of a price collapse from 2005-2012.  All of this supports the conclusion that there was not a housing supply bubble but there was a credit bust imposed on low income borrowers after 2005.

Monday, October 22, 2018

Housing: Part 326 - Another example of how much priors determine conclusions

Adam Ozimek has a recent post up at Moody's about the causes of the slow housing recovery.  Adam generally does great work, and the funny thing about this post is that he approaches the topic just as I would like to think I would.  He tries to find neutral references to measure new data against.  He uses reasonable logic to take inferences from those measures.  He looks at individual metro areas instead of the national numbers.  But, his conclusions are upside-down wrong.

This is because, as is common on this topic, he (reasonably) builds on the conventional presumptions about the bubble and bust: A credit bubble led to a housing price shock, which led to overbuilding, which led to an inevitable bust.

But, I have found that, to the contrary, there was a housing supply shortage in the dynamic coastal urban centers which led to a housing price shock in those cities (accelerated by more flexible lending to young households with high incomes) , which led to a migration event as renters were forced away from and existing owners tactically sold out of those cities.  That migration event stressed the housing supply of the main destinations of those migrants which led to a secondary housing price shock in those cities (Phoenix, etc. - "Contagion cities"), which led to a moral panic about lending and building, which caused the migration event to suddenly stop, which left those cities with large inventories of unsold homes.  And, when the entire episode was blamed on excess lending, post-crisis lending policy was tightened to the extreme, creating a post-crisis housing bust from 2009-2012 in credit constrained areas while wealthier areas stabilized.

Put more simply, prices can rise because of high demand or low supply, and where one cause is presumed vs. another, it will tend to lead to diametrically opposite conclusions.  One clue is quantity.  If quantity is rising, that suggests a demand cause.  If quantity is declining, that suggests a supply cause.  This is especially tricky with an inferior good.  Rice prices and quantities could both rise if rice is an inferior good to meats and other foods in the midst of a famine.  Effectively, there was a supply-caused price spike in the Closed Access cities from the late 1990s to 2005, and eventually there was a price spike for houses in less expensive "Contagion" cities where houses were purchased as inferior substitutions for Closed Access homes.  The supply-constrained market eventually led to a bubble market in an inferior good.

In the national data, both types of cities are mashed together, and rising quantities in the cities serving as inferior substitutes combined with the rising prices of the Closed Access cities made it look like a national housing bubble.  The financial crisis developed because these extreme supply-constraint problems were treated as if they had been caused by excess demand, so a credit bust was engineered in an attempt to solve a supply bust.  Rather than a bubble-bust, we had a bust-bust.

All of that is a prologue to reviewing Ozimek's post.

First, he compares the current rate of permitting in each MSA to the rate of permitting before the crisis.  He finds that the cities where supply has recovered the most are the cities where price growth is the highest now and has been strongest since the bubble peak.  He concludes, reasonably, that supply constraints aren't the primary driver of rising prices, because building appears to be strongest where prices are rising the most.

He does several regressions to test the effect of home prices on the recovery in permits, and finds in several models that rising prices either since the bubble peak, since the bust trough, or just in the last year, all correlate with more supply recovery.  And deep price drops from the bubble peak to the trough correlate with lower supply recovery.  This also convincingly suggests that supply constraints aren't the reason for current price appreciation.  And, cities where permits haven't recovered seem to have overbuilt in the bubble (which is why their prices had declined so much in the bust).

He does one final regression where he adds job growth to the mix, and when he does that, price increases since the trough become less significant, and the recovery of permits is explained by job growth and by the depth of the previous price declines.  In other words, even in that regression, we might conclude that permits are strongest where job growth is strong and weakest where cities had overbuilt during the boom.

All of these conclusions are reasonable - obvious, even - if we operate from the conventional presumptions about the boom and bust.  But, the presumptions are doing all the work here.

Ozimek even takes a reasonable precaution when measuring the recovery of permits.  He is trying to measure the recovery to a reasonable level, not to bubble levels.  So, he doesn't compare current permit rates to the peak rates of 2005.  He compares them to the average from 2000 to 2004.  But, this only seems like a reasonable precaution because of the conventional presumptions.

This wasn't a building bubble.  This was a migration event.  The places that were building more homes weren't places that suddenly had spontaneous speculative bubbles.  The peak building years of 2004-2005 mostly reflected an acceleration of long-standing migration patterns.  So, cities that built more in 2004-2005 were generally cities that had always built more.  The credit bust after 2007 didn't undo a bubble.  It undermined longstanding migration patterns.

I have reviewed construction employment numbers at the state level.  After controlling for existing rates of construction, states that built more in 2004-2005 have done well.  They still have construction employment that is above average.  States that had low levels of construction employment before 2004 still have about the same level of construction employment today that they did then.  States that had high levels of construction employment before 2004 have suffered deep cuts in construction employment, and most of that drop in construction employment happened after the credit bust was imposed.

So, one reason that job growth and the depth of the bust are the most significant variables in Ozimek's last regression is that, after 2007, the credit bust killed off job growth and mortgage lending in the cities where growth had previously been the highest before the bubble.  The drop in home prices wasn't due to overbuilding.  It was due to the sharp collapse in mortgage lending.  That is why home price appreciation in most cities before the bust was uniform across the market, but home price collapses after 2007 were most severe at the low end in every city.

We can see this by looking at housing permits as a proportion of population.  I also have included scatterplots showing MSA incomes, home prices, and permits/capita.  And, a couple of graphs comparing home prices in Seattle and Atlanta.

Several notable items are clear here:
  • The reason some cities have high home prices is because they have high incomes and low rates of homebuilding.
  • That relationship has been strengthening over time.
  • One reason cities with expensive homes have shown the most recovery to pre-crisis permit rates is because they never had high permit rates.  Their permit rates during expansions are highly politically constrained.  Ironically, it is cities like LA and San Francisco (the red lines at the bottom) that Ozimek would identify as having recovered the most, even though they still have much lower building rates than the other cities.  And, in fact, the reason their job growth is strong is because families there have gone back to stuffing ever more uncomfortably into a stagnant housing stock in those cities because the credit bust has obstructed the avenue for building homes in the less expensive cities.
  • Another reason cities with expensive homes have recovered the most is that the credit bust was highly correlated with incomes.  Cities with higher incomes are less credit constrained.  This is clear in the graphs comparing Seattle and Atlanta.  (One at market prices, and one with prices indexed to 2000 to compare relative changes.)  This is what most cities look like.  Top and bottom moved together during the boom, then after the credit bust, the bottom in every city dropped significantly compared to high tier markets.  So, the low end in Seattle has performed similarly to the high end in Atlanta.  So, the credit bust has caused low priced cities to decline more than high priced cities and the low tier within each city to decline more than the high tier.  That is because it was a credit bust that caused the collapse.
  • In the graph of housing permits, notice that there aren't typically surges in permits.  Permits rise up to a typical expansion level for each city and then remain fairly level for the remainder of the expansion.  The difference between cities is much larger than fluctuations over the course of a building expansion than changes within a city.  That is because permitting rates are largely a product of migration patterns.  The reason rates of building were high in Atlanta and Phoenix was because a lot of people move there.  There were a few cities that had building spikes.  Phoenix did have one from 2001 to 2005, but that spike in building was matched household by household by a spike in in-migration because of the Closed Access migration event.  Builders in Phoenix weren't building tens of thousands of spec homes in 2005.  In fact, they were holding lotteries among buyers because they couldn't get lots permitted fast enough.
  • If you think about the dominant effect of migration on these building patterns, it would be very difficult for the cities that build the most to overbuild, because for every home's worth of natural local growth, there are one or two households moving into the city.  If there isn't a negative shock to migration, then inventories in the cities that build the most will naturally be worked off the quickest.  The reason these cities might end up with excess inventory is because of local income shocks or migration shocks.  Here, there was a migration shock followed by an income shock.
  • Oddly, permits declined in every city at roughly the same time even though clearly there wasn't oversupply in LA or San Francisco.  In fact, the end of the migration event meant that population started to rise again in LA and San Francisco just as housing starts collapsed.  The reason that cities that saw the largest drop in home prices and the weakest labor growth have had the weakest housing permit recovery is that the cities that had the largest collapses were cities that welcomed in-migrants.  The credit bust killed off longstanding migration patterns, which created a housing collapse in those cities and limited job growth because job growth had previously been correlated with rising population.
In a later post, Ozimek noted that the job recovery has been uneven and that places with lower home prices have seen lower job growth since the crisis.  This also can be explained by the credit bust and the decline of migration.  Before the crisis, households were moving away from places where incomes are higher.  This is a perverse pattern, but it did lead to lower job creation in prosperous places and more job creation in less prosperous places.  Instead of fixing that perversion by building more homes in prosperous places, we added a new perversion to it.  We made it more difficult for households to build homes in low cost places.  This has tilted job growth more toward prosperous places, but instead of creating more prosperity, it just intensifies the cost pressure.

This is the problem with having a canonized set of presumptions that are all wrong.  Ozimek did everything right in his analysis.  The presumptions are the issue.  Until the public comes around to the correct presumptions, good analysts will be drawn to all the wrong conclusions about what has happened and what we should do about it.  For starters, for those households who haven't been drummed out of low tier homeownership by foreclosure, we would do wonders for working class balance sheets if we opened up the mortgage window to FICO scores under 760 again so that prices in those markets could recover by 20% or more to where they should be.  And, the borrowing and building that would be triggered by that shift would create several positive developments.  It would be disinflationary, because rent inflation would finally be tamed.  It would also likely boost interest rates.  It's quite amazing how easy it is to get a headache to go away when you stop hitting your head with a mallet.  But it is the presumptions about the cause of this whole mess that will have to change for us to do that.

Wednesday, October 17, 2018

Housing: Part 325 - Lending and the Housing Market

I don't know if I have shared this graph before.  I think there are some interesting things to see here regarding lending and housing.

Surprisingly, the number of mortgage accounts outstanding continues to decline.  In early 2008, there were 98 million mortgages outstanding.  That dropped to about 81 million in 2013.  Today there are just under 80 million.  Since 2015, the number of owner-occupied homes has increased by about 3 million and the homeownership rate has finally leveled off.  This has happened in spite of lending markets.  That net gain in homeowners consists roughly of 4 million additional households with no mortgage and a decline of 1 million households with mortgages.

Sources: New York Fed Quarterly Report on Household Debt and Credit,
Census (HVS), Fed Financial Accounts of the United States
The average mortgage size has been growing, but home prices were rising more quickly, which has helped home equity levels recover to pre-crisis levels.  Now, home prices and mortgage sizes are rising at about the same rate.  But, since there continues to be a shift to owners with no mortgage at all, average home equity levels continue to rise.

It certainly could be the case that there is a baby boomer effect here, and that there is some growth in new mortgaged ownership, but that it is matched by baby boomers who are making the last payment on old mortgages and moving from mortgaged ownership to unmortgaged ownership.

But, I'm going to step out on a limb here and suggest that this doesn't look like a lending market in a healthy recovery, let alone a lending market that is in need of a macroprudential clamp down.

Thursday, October 11, 2018

September 2018 CPI

Still limping along.  Non-shelter core inflation continues to be pacing along at around 1%.  Possibly shelter inflation might be starting to wane.  This continues to suggest that further rate hikes are unnecessary and potentially disruptive, but rising market rates since the Trump election continue to buffer rising policy rates.

Friday, October 5, 2018

Housing: Part 324 - Commercial Real Estate, Dean Baker, etc.

Arnold Kling points to this post by Dean Baker.  The last paragraph of the Baker post gives Baker's basic conclusion:
The basic story is that demand plummeted first and foremost because of the collapse of the housing bubble, along with the collapse of the bubble in non-residential construction that arose as the housing bubble began to deflate. The financial crisis undoubtedly hastened these collapses, but a steep drop in demand was made inevitable by these unsustainable bubbles that had been driving the recovery from the 2001 recession.
He is arguing against Bernanke's recent posts where Bernanke claims the recession was deepened more by the financial panics than by the housing bust.  (I basically agree with Bernanke, and I would say that the panics were largely caused by Fed policy choices in 2006-2008, and the losses were made permanent/justified by the extremely tight lending standards imposed by the post-conservatorship GSEs and CFPB.)

Bernanke points to the post-crisis drop in non-residential investment as evidence of the importance of the financial crisis in creating the deep recession.  Baker counters that the drop in non-residential investment was mostly a drop in non-residential construction, and was simply a part of the same bubble that had infected residential building.

I'm not sure if I have that much new to add here.  The entire thing pivots basically on this comment by Baker: "Again, the collapse of Lehman hastened this decline, but the end of this bubble was inevitable."  Whether the bust was truly inevitable or not is beside the point.  The bust was inevitable because the zeitgeist had deemed it inevitable.  The conclusions are a product of the presumptions.

And, looking at the CEPR paper that forms the basis of Baker's post, we can see the source of the false presumptions.  In the bullet points that summarize the paper, he notes, among other things:

The decline in residential construction during the downturn was mostly just a return to trend levels of construction, along with a predictable reduction due to the overbuilding of the bubble years. Any impact of the financial crisis was very much secondary.
The bubble and the risks it posed should have been evident to any careful observer. We saw an unprecedented run-up in house prices with no plausible explanation in the fundamentals of the housing market. Rents largely rose in step with inflation, which was inconsistent with house prices being driven by a shortage of housing.
Unfortunately, these assertions are broadly accepted as canon.  Obviously, taking opposition to the overbuilding issue is central to my work.  In the paper, Baker includes figures for residential construction as a % of GDP, which begins at 1980, and for non-residential construction as a % of GDP, which begins at 2002.  Here is a graph of those two measures, dating to 1960.

I agree with Kling that Baker seems to be an independent thinker. But his choice of start dates seem especially useful for magnifying the level of these measures during the "bubble" years.  I don't think he is trying to be misleading.  The bubble is canonized and setting the timeframe to maximize the apparent excess is part of the public hypnosis in support of the false canon.

In addition to the long-term view, there are a couple of points that might be made about these measures, which it is possible that Baker missed.  Within the non-residential category, "mining exploration, shafts, and wells" increased from 0.3% to 0.9% of GDP from 2003 to the end 2008.

Also the residential category includes brokers commissions on real estate transactions.  From 2000 to 2005, that increased from 0.9% to 1.4% of GDP.  If you subtract that from the residential investment measure, the peak level is at about the same % of GDP as the peaks in the 1970s.  Brokers commissions have nothing to do with building.  In fact, they were bloated specifically because of under-building.  They were bloated because of existing homes in coastal California selling for a million dollars.

But, nonetheless, building was strong at the same time prices were rising, which brings us to the second canonized false presumption that Baker references above: the idea that rising prices were unrelated to rising rent.  This is, again, a product of the public hypnosis on this issue.  Even looking nationally, rent inflation had been above non-rent core CPI inflation for the entire period from 1995 to 2008 - far above non-rent inflation for much of that time.  From the end of 1994 to Sept. 2008, non-shelter core CPI averaged 1.8% and shelter CPI averaged 3%.  But, the problem is even worse when you look at the MSA level instead of the national level.  Generally where prices increased, rents had increased.  So, it's more like there were many places with moderate prices and normal rent inflation and places with high prices and rent inflation persistently well above general inflation.  And, those were places that definitely were not over-investing in construction.  At the MSA level rent explains almost everything.  And, on this point, the public hypnosis is striking.  Open coastal urban newspapers or twitter and the topic is high rents in the coastal metropolises.  It isn't as if this is a secret.  But, hypnosis is strong enough to create mental silos on this issue.

This is part of the story on rising prices.  Before the mid-1990s, if rent affordability got worse in a city, it tended to revert to the mean.  But, beginning in the 1990s, the economy became characterized by this new regime, where urbanization has new value, the urban centers that would create that value do not grow, and workers must segregate by skill and income into and out of those cities.  So, now migration patterns exacerbate the rent inflation problem rather than causing rents and incomes to revert to the national mean.  Prices in 2005 reflected this regime shift.

But, the bubble was canonized before this realization was made.  One might argue that rents should still revert to the mean and that bubble prices still reflected over-optimism, even if rents had been rising for a decade.  (That would be wrong, as rent inflation has resumed after the crisis, but at least it would be an argument that addressed the facts.)  Instead, a false reality is invoked, rent inflation is ignored, and discussions of housing market sentiment revolve largely around price expectations, which, by presumption, leads to behavioral explanations.  Again, I don't say this to be harsh regarding Baker.  To treat rent correctly would be a radical, contrarian position.  Until this correction gets made in the zeitgeist, you might as well complain that he references gravity without engaging in an experimental proof.  It's canon, and the canon is wrong.

Regarding prices, here is a graph of various property types.

The thick orange line is non-residential commercial real estate.  The thick blue line is residential commercial real estate (multi-family buildings).  These are from CoStar.

Figure 5 in Baker's CEPR paper, published in September 2018, shows commercial real estate prices from 2002 to 2010 in order to show how strong the bubble was in commercial building.  He writes:
The plunge following the collapse of Lehman is not a surprise. Non-residential construction is largely dependent on bank credit, and when this dried up with the financial crisis, it was inevitable that it would take a serious hit. But the financial crisis was only the proximate cause of the drop in non-residential construction. The bursting of the bubble was inevitable in any case, the only question was the timing and specific events that set it in motion.
I do not disagree about the importance of credit.  This is all about presumptions.  This entire discussion hinges on one word: "inevitable".

A diversified basket of multi-family real estate bought at the peak of the "bubble" at the end of 2006 would have returned 44% of capital gains in addition to rental income over the following 12 years.  In the 9 years since the nadir at the end of 2009, it would have returned 124%.

In the graph above, I have also included the national Case-Shiller home price index (black), price levels from Zillow for the top and bottom of the Atlanta market (gray) and the LA market (red/orange).  Maybe I am confusing matters by including LA.  Many will see the clear signs of a credit-fueled bubble in the low tier prices in LA, but the truth of the matter is too complicated to go into here.  But, these measures tell a more complete story about what happened.

Once we recognize that rising rents are the main difference between LA and Atlanta and that credit at the extensive margin was not an important factor in the boom (which is clear in Atlanta and most other cities where price appreciation was not very different between top and bottom tier homes during the boom), we can see a different story.

Remove "inevitable" from your presumptions.  The consensus around "inevitable" led to acceptance of, even demands for, a negative credit shock in owner-occupier housing markets that continues to this day.  Nothing was inevitable.  Residential housing markets look like they track along with commercial markets for the entire period.  But, they are a chimera.  They contain open markets and closed markets.  Before 2007, prices in most markets, like Atlanta, were benign, and prices were very high in housing constrained markets.  Sentiment and credit access began to turn in a series of trend shifts and events from the end of 2005 to 2008.  Housing starts started to collapse in 2006 and prices eventually fell sharply after mid-2007.  This happened in Atlanta and LA and everywhere in between.  Since intrinsic value remained strong, commercial building, even in residential, remained strong until 2008, and rent inflation across the country spiked in 2006 and 2007 as new single family supply dried up.

Then, we imposed the "inevitable" bust on the owner-occupier housing market.  Instead of looking for ways to stabilize mortgage markets, lending was largely cut off to the bottom half of the market from 2008 on, and we can see the devastating effect if we look within cities, most of which look like Atlanta, where low tier prices took a post-crisis hit to valuations, frequently of 30% or more.  This has caused the market price of low tier homes to drop below the cost of construction, causing new building to dry up in low tier housing markets.  The lack of supply in those markets has been a boon to commercial residential builders, who have access to equity and borrowed capital.  Ample building is happening there, but it can't make up for the tremendous hit that owner-occupied single family homes have taken, and it can't create ample coastal urban supply.  So, the boon to multi-family builders continues for the same reason prices were high in 2005: there aren't enough units, especially where demand is greatest.

The national multi-family market reflects a price level that is not credit constrained, but is supply constrained.  The national home price reflects a price level that is credit constrained, which is a mixture of cities like LA, which is supply constrained, and Atlanta, which is especially credit constrained, and is only supply constrained now because it is credit constrained.