The Same Tides That Rise May Also Fall
A report from the Portland Tribune in Oregon. “A national expert says Portland faces many of the same problems as other cities with availability and affordability of housing. But Christopher Herbert said a couple of factors — rising prices and rents, and gentrification of neighborhoods — put Portland’s problems ‘a bit on steroids’ and make it ‘ground zero’ for a rapidly changing urban area. Herbert said it’s difficult to turn around a market with increasing costs and limited supply in an era when growth of household incomes has failed to keep pace. ‘In order to solve it, we need to work on both,’ Herbert said at the City Club of Portland. ‘We need to work on how to get incomes up — and for those who can’t get their incomes up, we need to work on subsidies — and on the price side, we need to get the cost of housing down.’”
“In Portland, Herbert said, the median home price is now five times the median household income — the point at which half are above and half below — compared with a national average of three times. That ratio is equal to Boston’s. During the housing bubble before the 2008 recession, Herbert said, Portland’s ratio was 4.5 to 1. According to the center’s 2017 report, home prices in Portland and other major West Coast cities rose 40 percent or more in inflation-adjusted dollars between 2000 and 2016 — increases comparable to parts of the Northeast.”
“Supply has not kept pace with demand — and Herbert said about 11 million people say they pay 50 percent or more of their incomes for housing, well above the 30-percent mark defined by federal guidelines as ‘affordable.’ ‘It does not leave much left over to pay for food, health care, transportation and other necessities of life,’ he said. There is construction, he added, ‘but only at the high end’ for 1.6 million renters with household incomes topping $100,000. ‘We are building for them. That market is getting saturated,’ Herbert said. ‘We haven’t been building for the rest.’”
From KJZZ in Arizona. “If you drive around the Arcadia neighborhood in east Phoenix, you’ll be hard pressed to find a house that hasn’t been renovated recently. Austin King is a local developer and lives in this neighborhood. ‘The amount of construction, the fences around houses, I mean just, it’s everywhere,’ King said.”
“According to Trulia, home prices in Maricopa County have increased by 83 percent, on average, since 2011. For perspective, King hits the rewind button. ‘It was shooting fish in a barrel. Literally, if you tried you could buy two or three homes in one day,’ he said, adding the fallout made for some crazy times in home buying if you had the money to invest. Those conditions were created, in part, because there was a giant glut of homes here in the valley. ‘By some estimates we overbuilt by 100,000 housing units,’ said Mark Stapp, the director of the Center for Real Estate Theory at Arizona State University.”
“To get a better idea of just how much things have changed across the valley KJZZ and our partners at the Arizona Center for Investigative Reporting ran the numbers. ‘We saw a couple of census tracts where the price per square foot increased sometimes two or three times,’ said Evan Wyloge, a reporter with AZCIR. He said trends like this popped up all over the valley. Take Mesa for example. Home values there are up more than 160 percent since 2011.”
The Phoenix New Times in Arizona. “Metro Phoenix is one of the lowest-ranked areas for residents spending within their means, according to a new study. The report from LendingTree combined anonymous data from the company’s users with average household income numbers from the U.S. Census Bureau. Phoenix nearly bottomed out the list of the top 50 metropolitan areas, placing 48th. The report surmised that the housing bubble of the last decade hit Phoenix especially hard, with a large number of residents whose mortgages take up a large portion of their income. Other cities in the Southwest and California are also struggling under housing debt.”
“‘Like Las Vegas, Phoenix is still recovering from the housing bust of the late 2000s, and residents are stretched,’ the report says.”
“Yet unlike cities with higher average incomes, such as San Francisco, with residents who can support such mortgages, Phoenix has a lower-than-average household income among the 50 metro areas LendingTree examined. ‘The challenge in Phoenix, I would say, is mostly on the housing side,’ report author Brian Karimzad told Phoenix New Times. ‘Phoenix residents have housing debt balances, mortgage balances, that are 23 percent higher than the national average, but their incomes are lower than the national average,’ he said.”
The Charlotte Observer in North Carolina. “Home values in Charlotte rose at the fourth-highest rate among U.S. cities last month, according to Zillow. Zillow Chief Economist Svenja Gudell said limited supply and high demand is impacting markets nationwide. Gudell said that despite the rapidly increasing prices, another housing bubble isn’t being inflated. ‘It might be easy to assume another bubble is emerging, with home values growing 10 or 12 percent per year, but don’t worry,’ Guddell said, in a statement. ‘The market is reacting to basic economic laws, and is behaving exactly the way we would expect it to given good overall growth, limited supply of homes for sale and decent housing affordability thanks to low mortgage interest rates.’”
“Only three cities saw their home values rise faster than Charlotte: Las Vegas (up 10.2 percent), San Jose, Calif. (up 10.3 percent) and Seattle, home of both Amazon and skyrocketing home prices (up 12.4 percent).”
The Los Angeles Times in California. “A trio of experts gave a largely positive outlook on the state of the economy during a Newport Beach Chamber of Commerce forum. The event at the Balboa Bay Resort featured UCLA’s Jerry Nickelsburg, an adjunct professor of economics and director of the UCLA Anderson Forecast; Christopher Schwarz, an associate professor of finance at UC Irvine and faculty director of the school’s Center for Investment and Wealth Management; and Jonathan Lansner, a business columnist with the Orange County Register.”
“Nickelsburg noted how home prices in San Diego, Los Angeles and San Francisco have not only rebounded from the recession, but have surpassed their 2007 housing bubble highs. Schwarz said most areas of the economy, such as bonds and real estate, have been faring well. He said there’s always the fear, though, that the same economic tides that rise may also fall. Lansner, who’s been covering business for the Register since 1986, said it’s practically impossible to tell if another housing bubble is en route.”
The Sacramento Bee in California. “Sacramento County’s real estate market saw its lowest September sales total in three years, the result of low inventory and relatively high prices that have priced some buyers out of the market, according to one housing analyst. As for the three-year low in September sales, CoreLogic analyst Andrew LePage said there just aren’t many homes on the market, and more buyers may be unwilling to pay high prices. The area is coming off a hot summer season, when more homes were sold across the four-county Sacramento region than in any similar period since the peak of the housing bubble in 2005.”
From Builder Online. “An infill development in Sacramento is seeking to lure first-time home buyers with offerings in the $300,000 range and mortgages requiring no down payment. The Sacramento Bee reports: ‘The Mill at Broadway, central Sacramento’s largest infill housing development, has begun offering mortgage loans with no down payments, hoping to entice more young first-time buyers who don’t want to pay high rents, but don’t have cash for upfront payments on a house, its developer said.’”
“The densely packed project is expected to eventually have 800 to 1,000 homes. Since it opened 20 months ago, The Mill has sold 175 units, mainly to young singles, said developer Kevin Smith of Ranch Capital, a Southern California-based investment company.”
From KOLO 8 in Nevada. “The luxury housing market in Northern Nevada has grown substantially over the past year. ‘What we’re seeing with affluent consumers today is that we know they’re very globally-minded, that they love real estate, and that they’re looking for a lifestyle,’ said Stephanie Anton of Luxury Portfolio International. ‘Its not just about a home and it’s not just about a shelter decision. They want to live in places where they can bring their families and have wonderful experiences, so a place like Reno, like Lake Tahoe makes a lot of sense for the affluent consumer today.’”
“‘We look at luxury as a million dollars or more; that sort of defines who that client is,’ said Nancy Fennell, President of Dickson Realty. ‘But I think luxury is a very local term; what is luxury in our market is certainly very different from what it is in San Francisco. I think that is what has doubled that market this year from last year; what people can get for their money here.’”
“And while these days it’s a little easier for buyers who can compete in the higher-end markets, times are always changing. ‘It’s the yin and yang of real estate,’ Fennell said. ‘We will have too much inventory and prices will go down and when that is absorbed, then we will have too little and we’re just in that too little in the under $500,000 range right now.’”
‘on the price side, we need to get the cost of housing down’
That’s some interesting lip service Chris. You might have to talk with Mel Watt.
‘Lansner, who’s been covering business for the Register since 1986, said it’s practically impossible to tell if another housing bubble is en route’
Well this is where we are. It might be OK. It might crash and wipe out trillions - again. It sure seems like there must be a better way to build an economy other than selling each other shacks.
Curiously, house prices are over six times what they were a generation ago, adjusted for inflation.
https://www.cnbc.com/2017/06/23/how-much-housing-prices-have-risen-since-1940.html
Wages have also risen on an inflation-adjusted basis over that time…as has the size of homes.
So a least a portion of that increase is due to people choosing to live in larger houses because they can afford to live in a larger house.
I don’t think FREDs data goes back farther, but the inflation adjusted median household income in the US has risen by about 20% from 1984 to 2016 (32 years). Median home prices over the prior 30 years have clearly outpaced that growth…perhaps double, or triple that.
I’m very aware of the house size creep. I think the belief that houses are wealth generators is a factor in that. Wages have not gone up significantly since 1999, which some think is when the housing bubble really picked up steam. House prices have doubled since 1999.
Might be because of something else.
Wages have also risen on an inflation-adjusted basis over that time… I don’t think FREDs data goes back farther, but the inflation adjusted median household income in the US has risen by about 20% from 1984 to 2016 (32 years).
“Wages” have not risen at all. Median household income is not the same thing as wages. Once again, the deliberate changing of definitions and metrics to obscure the truth.
Re “median household income”…
In 1984, none of my friends’ mothers worked outside the home. “Household income” consisted of dad’s job. Mom took care of the house, shopping, bill paying, errands, meals, kids. That was the division of labor.
Few of my friends lived in single parent households, either.
Fast forward to today and vastly more women are employed. So now with two people working, inflation-adjusted median household income is up only 20%?
We are walking backwards.
progreski
I was going to call out that stat on income over time but Karen beat me to the punch.
Here is a good narrative of just how backwards we have been going for the past 4 decades:
“In short, 44 years had passed with the typical American worker absorbing roughly a 2% pay cut.”
https://www.nytimes.com/2017/10/07/business/unemployment-wages-economy.html
I heard that CPI does not include food, fuel and medical costs. Additionally the inflation figure is made meaningless in that a discussion on the impact of taxes on household net income isn’t measured nor is the cost of tax and regulation which impacts all goods and services purchased.
Fair point on wages vs. household income.
My point simply is that families had more money to spend on housing, and many chose to use that additional money to buy bigger houses.
And that was part of the effect.
“I heard that CPI does not include food, fuel and medical costs.”
What Is in the Basket of Goods?
The basket of goods includes food and beverages such as cereal, milk and coffee. It also includes housing costs and bedroom furniture. Apparel, transportation expenses, medical care costs, and recreational expenses including pets, toys and admissions to museums also make the list. Finally, education and communication expenses round out the basket’s contents, and the government also includes a few random items such as tobacco, haircuts and funerals.
…
And further to the point..
Input cost to construct an SFR today is exactly what it was 20 years ago irrespective of square footage of house yet asking prices rose 700% while wages grew 20%.
There’s some fraud going on.
“There’s some fraud going on.”
Housing’s share of the CPI consumption basket has grown over time, thanks to the people who volunteer to pay 50% of their income for housing, plus a pattern of tract home development which only offers consumers cookie-cutter identical McMansions at exorbitant prices. With rents and housing prices climbing skyward, how can inflation possibly be as tame as officially reported?
thanks to the people who volunteer to pay 50% of their income for housing
Sometimes this is voluntary, as when individuals stretch to buy the biggest house they can afford, but sometimes this is not voluntary, as when a lack of affordable options force people into renting above what they can truly afford. I just say this because I believe In some localities there truly are not cheaper options available. It’s a vicious cycle because high rents make saving for a down payment very difficult. Hence why it is better to live with family for as long as possible in this environment.
“I just say this because I believe In some localities there truly are not cheaper options available.”
Living in an expensive location is a (voluntary) lifestyle choice. We know many families and friends who left San Diego and others who never came because it’s too expensive to live here.
I agree with Karen. Same with me growing up in the late 70s. If women worked, it was to work at the grocery store or Macy’s, or at best high-end secretarial. They worked only for extra cash to make ends meet. It wasn’t really depended on as income. Mortgages were approved on daddy’s income.
“how can inflation possibly be as tame as officially reported?”
There’s price fixing, market rigging and then there is inflation. No inflation has been observed in 20 years or more.
One thing to consider with house size increases are productivity gains. One worker can create X feet of housing in 1 hour back in 1941. Today he can create X + 5 feet, for example, in that hour.
Also, building materials have improved. Older houses were smaller, draftier, damper because of poorer building materials and techniques. It would have been extremely expensive to heat a modern McMansion back in say 1920. Today it’s still expensive but with superior building materials and insulation, it’s not a king’s ransom. Modern heating and cooling advancements have made larger houses possible today.
Who pays this clown to say the things he says?
Evidently you….the free rent he receives from living inside your head. HA!
Lame….
Yes, very lame. I was just repeating what HA said last week. So lame I should know better. HA!
DebtDonkey.
Quincy, WA Housing Prices Crater 11% YOY
https://www.zillow.com/quincy-wa/home-values/
‘We need to work on how to get incomes up — and for those who can’t get their incomes up, we need to work on subsidies — and on the price side, we need to get the cost of housing down.’
Has anyone considered the idea of tightening lending standards to reduce the multiples of income that home buyers can borrow? Because it seems like excess leverage is a big driver of exorbitant home prices. Those who are most willing to leverage their household balance sheets will win the bids.
“The report surmised that the housing bubble of the last decade hit Phoenix especially hard, with a large number of residents whose mortgages take up a large portion of their income. Other cities in the Southwest and California are also struggling under housing debt.”
Prudent lending standards could help avoid these problems.
I predicted that prices wouldn’t fall; instead, various govs would hand out cheese to subsidize existing prices.
I guess the entire world has been entirely disconnected from fundamentals. Nobody can fund their needs out of their wages anymore. Everything — from down payments in San Fransisco to Elon Musk to expensive nuclear plants — are being subsidized directly or indirectly. A worldwide Dry Cleaner Effect.
go easy on those nukes,a few less regs n lawyers h nukes play well
“prices wouldn’t fall; instead, various govs would hand out cheese to subsidize existing prices”
That works until people resist.
Any time you buy on credit you are complicit. A spendthrift debtor is a danger to the entire community.
Those who are most willing to leverage their household balance sheets will win the bids.
It’s kind of a perverse “race to the bottom” where the winners in the house bidding war are those who are most keen to become indentured servants.
It’s an example of the Winner’s Curse.
They dont want housing prices to drop, less revenue and taxes. They dont care about affordabilty. Sure lets give everyone 100k raise see what that does..
“They dont want”
Prices fell 45% during the last minor correction in the Bay area. I would expect a 75%+ decline with this current correction just getting under way. Even with that adjustment prices would still be many multiples above construction cost.
A wise man once said, “shhit in one hand and want in the other and see which fills up quicker.”
Certainly we know a crude man said it…..HA! ….is that you?
DebtDonkey
Mapleton, UT Housing Prices Crater 5% YOY
https://www.zillow.com/mapleton-ut/home-values/
Opinion: Guest Opinions
Sally Anderson: Sadly leaving an elitist, money-hungry city
‘It’s sad, really, the finality of this, the continuous moving of neighbors and tenants out of our complex.’
‘Every month, now every week, there are more and more that are abandoning our homes here and moving — god knows where we will all be dispersed to. I am the last survivor, the one left holding down the fort, so to speak, of my building now, at least, certainly in my corner of it. I live right on the driveway as it enters all the parking lots — a very busy, and sometimes noisy location. The upstairs neighbors moved last week, the next-door ones moved yesterday, and the downstairs — a couple months ago. I have been watching the moves, the getting-rid-of-stuff, the moving trucks, the friends helping out, the dumpsters filling up weekly with everyone’s discarded possessions. And I have been feeling more and more alone as a result. There are only a few cars in each parking lot day and night. It is like a ghost town here now. The quiet is welcome, but is — eerie. Urban living isn’t supposed to be this lonely.’
‘This is all due to our Eastpointe Apartments complex being sold to the Aimco for $18 million, back in 2014. Bad move. They eyed this place from the first day, noticing the older buildings, seeing dollar signs for their mega-rich company, their stocks being raised, or however it works for real estate. What they had in mind from the beginning was to tear down all of these 140 or so apartments — mostly two-bedroom — and build 236 new, upscale, very pricey, smaller places. In order to do this, they had to evict each of us tenants here, force us out slowly but surely, until it will be vacant sometime next month, in November. Then the demolition will start.’
‘This has been one of the last affordable places to live in Boulder, without being considered at or below the poverty line, so you have to apply, and then qualify for low-income housing. The previous owner was an elderly gentleman from back East, so I was told, and just wanted his tenants to be happy and be able to afford to live here. Bless his memory! Many of us attended the City Council meeting, in the fall of last year, hoping to appeal to the good judgment, or perhaps the sentiments, of the council. We spoke, presented our cases, pleaded and cried. To no avail. Little did we know, that this was a done deal already. More tax dollars for this city, of course! More renters with more money, and an incredible increase of density on this 7-acre lot of land. We were being displaced, but what do the city elders care about us, when money is what makes their worlds go round?’
‘I leave with sadness, with a great sense of loss, and knowing that I cannot afford to live in this city anymore. I know because I spent several stressful months looking for something affordable. I am moving out of this city. I, along with many others of moderate income and means, are forced out of this elitist and money-hungry city. I work in Boulder, and now will be doing the commute to and from, along with the masses.’
In a global economy the US is the fancy nabe. Pressure will continue on low earners in nice areas of the US forever I expect.
The US has lots of towns named after native Americans. Now after they are all gone we think what does that name mean? It will be the same for places like Irvine, Pasadena, San Jose, etc. “it will be were the Gweilo used to live long ago” Now they all live in Texas on a reservation and they are all very fat on free government cheese.
Its Monday what do you want ? I’m only half joking BTW
“In a global economy the US is the fancy nabe. Pressure will continue on low earners in nice areas of the US forever I expect.”
This is definitely true when there’s speculation involved. The money runs to the toniest areas. However, once the tide goes out those areas experience devastating drops in price just like everywhere else.
I, along with many others of moderate income and means, are forced out of this elitist and money-hungry city. I work in Boulder, and now will be doing the commute to and from, along with the masses
So she’s gonna have to commute to work from Superior, Lousiville, Westminster, Broomfield or (shudder) El Longmonto.
Boo hoo.
El Longmonto? It always seemed idyllic to me. Not so? Por que?
I guess parts of El Longmonto are OK, it’s not Santa Ana, CA. But after Greeley, it has to be the most Hispanic city in northern Colorado, and with that come higher levels of crime.
Thanks for the insight. Thinking of moving to CO in a few years, but I wouldn’t buy until a 20-30% housing market correction. It looks almost as ridiculous as Seattle at this point…
No, it’s even more ridiculous, as the Denver area has a lot more room to expand than Seattle does.
Spend a little time on Zillow checking Boulder prices. They are beyond Denver and feature price per square foot on par with the SF Bay Area.
Denver foreclosure map in 2007… beware!
http://picpaste.com/denver_map.jpg
Equity locusts suck.
Going to destroy yet another community’s affordability, are you? Congrats.
I lived in Longmont a decade ago and liked it. The main street was just starting to undergo revitalization and had blocks of dive bars/piñata shops/vacant storefronts punctuated with the odd brewery or coffee house, with the wafting scent of freshly butchered turkey carcas from up the road. Immaculate Victorian houses were interspersed with drug shanties. It had enough charm and low enough rent that it was attractive to live there. These days real estate prices are barely lower than Denver, and while I have little doubt that main street revitalization has done wonders over the last decade, it’s not enough to bring the town on par with Denver. I foresee a bigger price correction in Longmont than in neighboring Denver metro or Boulder.
Actually, Main St. (Hwy 287) pretty much looks the same as you describe. The old Butterball turkey plant just on the southern edge of downtown is gone, bulldozed to the ground and it’s been a vacant field for years.
Hover St has all the new shops and eateries, but Main still looks ghetto, especially on the north side of town.
I lived in Longmont a decade ago and liked it. The main street was just starting to undergo revitalization and had blocks of dive bars/piñata shops/vacant storefronts punctuated with the odd brewery or coffee house, with the wafting scent of freshly butchered turkey carcas from up the road.
I lived there in 1996 and in the area until 2014. From my perspective it was actually better before the “improvements” you mention. It was a great old school blue collar car-guy town before the crushed the weekend cruising scene to “revitalize” it.
“Many of us attended the City Council meeting, in the fall of last year, hoping to appeal to the good judgment, or perhaps the sentiments, of the council. We spoke, presented our cases, pleaded and cried. To no avail.”
Oh? And why was that?
“Little did we know, that this was a done deal already.”
What a surprise! Bahahahahahahahahahahaha.
Did you guys see the picture of those apartments? They look like a firetrap. That said, it’s too bad someone can’t afford to build some basic Grade B+ there. But, you know, all the towns want to be the expensive town, where they collect the juicy taxes and “the help” (along with their low-achiever offspring and higher propensity for crime) commute from two towns over.
Apartments like that are common on the Front Range
Her betters are kicking her out of Boulder.
Look at the bright side, baby. You still get to commute there, and line their pockets with money.
You should be honored. But, clearly, you are not. ‘Tis a good thing they are kicking you out of their community. You do not belong. If you did belong, you’d see this development as a good and proper thing. Just as they do.
‘China’s struggle with the ‘new domestic normal’ and the ‘new international normal’
‘Author: Wing Thye Woo, UC Davis, Sunway University, Fudan University, and IPLE-CASS’
‘Amid an ailing international order and a substantially lower domestic growth rate, many are sceptical about China’s capacity to commit to ‘growing an open global economy’ as President Xi Jinping has commanded. We see this as an achievable objective, but only if Beijing pursues significant domestic policy realignments as well an ambitious collaboration with foreign countries to revamp international governance arrangements.’
‘For globalisation to deepen and widen, China must take greater leadership in the supply of global public goods — fighting climate change, preventing nuclear proliferation and international terrorism, and stabilising the international monetary system.’
‘The disappearance of the ‘old normal’ need not herald doom for Beijing. With the right policy settings, Beijing can use the ‘twin new normals’ not only to sustainably grow itself, but to engage more positively with a still globalised world.’
Just build some more empty cities Wing.
Just build some more empty cities Wing.
Having brand new ghost towns in a nation of 1.3 billion people is mind boggling, especially when one considers that a generation ago most were living in rural huts. Of course, all those new high rises and the 100 years worth of concrete poured in just a few years wasn’t really for the peasants’ benefit.
‘Gov. Jerry Brown persistently cautions Californians that their pulsating economy cannot last forever. When, for example, he unveiled a revised state budget last May, he included what has become boilerplate, warning that “by the time the budget is enacted in June, the economy will have finished its eighth year of expansion — only two years shorter than the longest recovery since World War II. A recession at some point is inevitable.”
‘Of course it is, but Brown probably hopes it occurs after he’s handed over the keys to the Capitol’s corner office to his successor 14 months hence. A downturn would probably result in a major budget crisis, given that under Brown, the state budget has become even more dependent on very volatile taxes from a relative handful of high-income taxpayers.’
‘Despite its strong overall economy, California also has the nation’s worst functional poverty, creating what Antonio Villaraigosa, one of the leading candidates to be Brown’s successor, calls “two Californias” — one enjoying the California lifestyle, the other mired in structural poverty.’
‘Last month, the Census Bureau published its annual data on poverty, revealing that once again, by a “supplemental measure” that takes housing and other costs of living into account, California had the highest rate of any state, 20.4 percent, in 2016. That translates into nearly 8 million Californians who lack enough income to meet their basic needs.’
‘Using similar methodology, the Public Policy Institute of California says 19.5 percent of Californians fell below the income level needed “to meet basic needs,” about $30,000 a year for a family of four in 2015 with Los Angeles County having the highest rate of 24.9 percent.’
‘Even more alarming, PPIC calculates that the state’s functional poverty rate doubles to 38.7 percent when those in “near-poverty” are included.’
‘While the strong economy of recent years has dropped those rates by a few points, they are still embarrassingly high and were the recession that Brown fears materialize, they would spike upwards again. “The next governor will have to do a lot more about poverty,” Villaraigosa said during a recent forum with his fellow candidates.’
‘No kidding.’
‘the state’s functional poverty rate doubles to 38.7 percent when those in “near-poverty” are included’
That doesn’t sound like a pulsating economy.
IIRC, The People’s Republic of CaliMex has the nations biggest income inequality, and it’s been that way for at least 30 years
https://www.bloomberg.com/news/articles/2017-10-30/u-s-homes-are-selling-at-the-fastest-pace-in-three-decades
Give me a friggin break…a dataset of 8,000 buyers? We have millions of sales each year…can’t they look at a bit more data?
Dig deeper. The alleged sales include those traded between REITs, transfers between GSEs, etc . Remember…. Organic housing is at 20 year lows.
I got this email last week:
National and State Mortgage Risk Indices Update:
Mortgage risk jumped in July. The National Mortgage Risk Index (NMRI) for July was up 0.6 percentage point from a year ago. The July Refinance NMRI also matched its all-time series high set in June 2017 primarily driven by a leap in the Cash-out index. Purchase volume plateaued at its high level from a year earlier. Volume by count remained close to its record level from a year ago (down 1%), but up 17% compared to July 2014.
The National Mortgage Risk Index (NMRI) measures how government-guaranteed loans with an origination in a given month would perform if subjected to the same stress as in the financial crisis that began in 2007. This is similar to stress tests routinely performed to ascertain an automobile’s crashworthiness or a building’s ability to withstand severe hurricane force winds. An NMRI value of 10%, for example, for a given set of loans indicates that 10% of those loans would be expected to default in a severe stress event, based on the actual performance of loans with the same risk characteristics after the financial crisis. The NMRI is published monthly utilizing a nearly complete census of loan-level data for loans guaranteed by Fannie Mae, Freddie Mac, FHA, VA, and Rural Housing. These same Agency data are also used to track loan volume and other characteristics.
In July, the three main drivers towards greater risk were:
• A greater presence of first-time buyers (FTBs); FTBs MRI now almost twice as high as Repeat Buyer MRI and continues to rise rapidly, while the Repeat Buyer MRI is up only modestly since July 2013. The rising FTBs MRI is pro-cyclically helping fuel the entry level home price boom now entering its sixth year.
• Continued credit easing from nonbanks; while the purchase loan share of nonbanks has stabilized at around 60%, all of the year-over-year increase in risk is attributable to nonbanks as banks have maintained their more moderate levels of risk.
• A greater presence of cash out (CO) refis; as homeowners’ tappable equity has increased, the share of COs has increased in tandem. COs by nature are riskier than other loan products and they are rapidly getting riskier.
“Agency backed lending, particularly at the FHA, is helping to fuel an unsustainable price boom, particularly for first-time buyers ,” noted Edward Pinto, codirector of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk. “Given the worsening imbalance between supply and demand, the FHA should be acting counter-cyclically to shrink its credit box,” Pinto added.
The implications of leverage during a long-lasting seller’s market, now in its 61st month, are higher house prices concentrated at the lower end of the market where leverage has been increasing the most. On the national level, a long period with few metros experiencing negative home price growth, which is allowing market excesses to build. Moving forward, there will be even more risk as borrowers, especially first-time buyers, are forced to take on more leverage to buy.
“This month’s jump in risk but flat volume may indicate that the government agencies are further loosening leverage to maintain today’s high levels of mortgage activity,” said Tobias Peter, senior research analyst at AEI’s International Center on Housing Risk. “Over the long run, this spells trouble for the health of the housing market,” Peter added.
With the addition of the data for July 2017, the NMRI covers 29.0 million Agency loans dating back to September 2012, comprised of over 13.7 million Agency purchase loans and almost 15.3 million Agency refinance loans. The NMRI is published for purchase loans (with separate indices for first-time and repeat buyers), refinance loans (with separate indices for no-cash-out and cash-out refinance loans), and the composite of purchase and refinance loans.
Join AEI’s International Center on Housing Risk co-director Edward Pinto and senior research analyst Tobias Peter for the monthly update of the National Mortgage Risk Index (NMRI), State Mortgage Risk Indices (SMRI), and parallel risk indices for major metropolitan areas in California and Texas at 11:00 AM ET, October 30. The risk indices provide an objective and transparent measure of how mortgage loans originated month by month would perform under severely stressed conditions. Pinto and Peter will analyze the riskiness of single-family mortgage originations based on data through July 2017.
AEI’s International Center on Housing Risk provides research, commentary, and new tools for measuring risk in housing and mortgage markets. The recent financial crisis, and the resulting devastation for millions of families, largely stemmed from a failure to understand the build-up of risk in these markets.
Mr. Pinto is a resident fellow at AEI and a former executive vice president and chief credit officer for Fannie Mae. Mr. Peter is a senior research analyst at AEI where he focuses on mortgage risk and housing risk.
A link to the national raw data:
http://www.housingrisk.org/wp-content/uploads/2017/07/07.31.17-NMRI-data-download.xlsx
I like this kind of quantitative analysis of mortgage risk. However, I like it even more if it can somehow compare how risky the lending is today, as compared to, say 2004-2007. The link in the NMRI method PDF to the baseline data from these years is a dead link.
For example, the composite Home Purchase Loan reading is now 12.7%, up from the September 2012 reading of 11.29%.
The refinance reading is now 12.69%, up from 8.51% in September 2012.
It would be useful to know, using the same methodology, what the reading was in 2005…2006…2007? Yes, credit is loosening and lending is getting more risky…but is it risky compared to 2015? Or risky compared to 2005?
Corelogic reports similar increases in mortgage lending risk through their HCI (Housing Credit Index). The Q2 2017 reading was 117…up 20 points from Q2 2016. However, they also share what the reading peaked during the housing bubble years…about 230.
Their dataset goes back to 2001…where the reading was similar to today. Also in 2014…similar to today. Only when the Corelogic data breaks above the low 120’s does it seem to break out of a “normal” band–so we’re close…but not there yet.
We are certainly trending in that direction though…watch this space…Mel Watt.
By the way, this kind of raw data is cool:
http://www.housingrisk.org/wp-content/uploads/2014/10/Periodic-Table-of-Housing-Risk-General-30-Year.pdf
The data shows we are not even close to being as bubble as 2005-6 and this confirms what I see on the ground.
Maunoloa, Hawaii Housing Prices Crater 8% YOY
https://www.movoto.com/maunaloa-hi/market-trends/
HA! Is that you posting again?
The S&P CoreLogic Case-Shiller U.S. National Price Index was up 6.1% in August……
DebtDonkey
Quincy, WA Housing Prices Crater 11% YOY
https://www.zillow.com/quincy-wa/home-values/
Why can’t the Fed just continue pumping trillions upon trillions of QE firehose money into the fake eCONomy? They can buy unlimited amounts of stocks, bonds, mbs, cdo’s, etc. They can even buy and sell to themselves to set market prices. What could ever go wrong?
“The luxury housing market in Northern Nevada has grown substantially over the past year. ‘What we’re seeing with affluent consumers today is that we know they’re very globally-minded, that they love real estate, and that they’re looking for a lifestyle,’ said Stephanie Anton of Luxury Portfolio International. ‘Its not just about a home and it’s not just about a shelter decision. They want to live in places where they can bring their families and have wonderful experiences, so a place like Reno, like Lake Tahoe makes a lot of sense for the affluent consumer today.’”
Oh yeah, right….have you ever been to downtown Reno? It’s a nasty dump littered with drunken transients and boarded up buildings.
Last week we looked at places to live around Lake Tahoe. We could save $1,000 per month in CA state income tax, more if we cannot deduct state taxes off our federal income. If the MID is also eliminated, we might re-examine moving to San Diego.
“Herbert said at the City Club of Portland. ‘We need to work on how to get incomes up — and for those who can’t get their incomes up, we need to work on subsidies — and on the price side, we need to get the cost of housing down.”
and thereby ignoring the fact that subsidies drive up the prices more than anything else.
any assistance to buyers who can not afford the prices will drive up the demand and cause prices to rise.
Yep. Look at what Section 8 has done to affordability.
Home builders pledge to defeat income tax overhaul after homeowner credit rejected
Herb Jackson | USA TODAY
Updated 1 hour ago
The White House and congressional leaders released a framework for tax changes, but many key details have been left to tax committees. Here’s how that process is working.
Jeff Dionise, Ramon Padilla, Paul Singer and Herbert Jackson, USA TODAY
The Republican proposal to overhaul the tax code gained a powerful enemy over the weekend when the National Association of Home Builders, a trade group that been supportive until now, launched a drive to defeat it.
The decision came despite an announcement by a key House Republican, Ways and Means Chairman Kevin Brady of Texas, that a deduction for property taxes would be maintained in tax legislation that is to be unveiled Wednesday.
…
So they chucked eliminating the local property tax exemption and the MID from the tax reform proposal. What is left in the measure that is of interest to HBB readers?
Mukilteo, WA Housing Prices Crater 5% YOY
https://www.movoto.com/mukilteo-wa/market-trends/
Hey HA, time for some analysis…
The S&P CoreLogic Case-Shiller U.S. National Price Index was up 6.1% year over year in August
DebtDonkey
Quincy, WA Housing Prices Crater 11% YOY
https://www.zillow.com/quincy-wa/home-values/
I’m really getting the hang of not watching the NFL games.