Saturday, February 16, 2019

Housing: Part 343 - New Homes and Vacancies During the Boom and Bust

There may be a similar post to this one back in the previous 342 housing posts, but something I happened upon today reminded me of it.  Price trends among sold homes, vacant homes for sale, and existing homes give a clue about what happened during the turn in housing.

I haven't shown it here, but the median existing home price didn't rise as much in 2004-2005 as the mean home price.  That is because expensive cities were getting more expensive, so the distribution of prices was becoming more skewed.  The rise of prices in the most expensive places caused the average to rise more than the median.

But, here we can see that the median new home was slightly declining in value relative to the median existing home, especially in 2005-2007.  That is because Americans were not adding more expensive homes to the housing stock.  They were adding less expensive homes to the housing stock, compared to past trends.  That is because the housing boom was facilitating a decline in housing expenditures the only way it could, by creating compositional shifts of population to less expensive places.  Having a building boom in less expensive cities is, in fact, the only way to reduce aggregate housing expenditures in a Closed Access context.  We can't have a building boom in the expensive cities, and rents aren't going to moderate if we slow down building.  A building boom is the only way to do it.  And, it was working.

Since the crisis, the median prices of new homes has moved much higher because we have used mortgage suppression to slow building down and to reduce ownership in low-tier markets.  Because building is the way to reduce housing expenditures, rental expense has remained level for homeowners while rent for non-owners has continued to take a larger portion of their incomes, since the crisis.

Also, note the measure of the median asking price compared to the median existing home price.  It started to rise in 2005.  This was during the mass exodus from the Closed Access cities.  At the same time, vacancies rose among non-rental homes, and inventory of homes for sale was also increasing, suggesting that sales were becoming more difficult to come by.  But, note that during that time, the average price of homes for sale was rising.  This suggests that the inventory was at the high end.  It also happens to be the case that during that time, rates of sales and prices were slowing more rapidly in high end markets within each metro area.

This continued to be the case through 2007 and 2008 when defaults started to rise.  That is because it wasn't low end borrowers defaulting that caused vacancies to rise.  It was a change in sentiment at the top end.  The top end fell first.

The median asking price of units for sale has remained elevated because of the mortgage suppression.  Today there aren't as many sales at the low end, and many low-end households are sort of grandfathered into their units, and can't readily sell and buy into another unit, either because credit is tight or because they lost equity in the crisis.

5 comments:

  1. https://www.theinstitutionalriskanalyst.com/single-post/2019/02/18/The-Trade-Sell-Servicing-Buy-a-Bank

    Whalen is a bear...but some interesting stuff in here.

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