Housing Market 101

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Housing Market 101

  1. 1. Housing Market 101 Brian Greber, Director Center for Business Research & Economic Development College of Business & Economics Boise State UniversityIdaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011 1
  2. 2. INTRODUCTION • Brian Greber, Ph.D. – B.S. Forestry (WVU) – M.S. (WVU), Ph.D.(VT) Resource Economics – 19 years industry/executive experience (most recently VP Marketing & Technology in a Fortune 100 Forest Products Firm (Weyerhaeuser)) – With Boise State since November 2009 – 14 years teaching, research, policy experience at universities (VT, OSU, BSU, CTU) • Lots of public policy work at the state & federal levels – Have own business focused on Organizational Effectiveness– Achieved Visions™ – STAR Motorcycle Safety Instructor – President of the Board of Directors of The Arc – Live in Boise – avid fitness buff and enjoy most things outdoors – Great family – 2 kids and “lifelong best friend” © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 2
  3. 3. Today• Goals – Provide a basis for thinking through housing markets in general – Systematically discuss the “melt down” – Think about what will drive housing in the Treasure Valley and Idaho in the next 5 years – Forge an on-going relationship between The Idaho Statesman and COBE/BRED• This is not meant to be tomorrow’s story• Focus will be national – Idaho will not correct until the national situation corrects (Idaho will lag) © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 3
  4. 4. What Happened in US Housing?Economists Knew There was an Overbuild, They Missed the Melt Down © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 4
  5. 5. Housing Demand: The Simple MathNew Housing Demand = Scrappage + New Population Demand + 2nd Home/Investment Demand = S + NPD + INV• S in US estimated between 190-250 thousand/year. Large component multifamily and manufactured housing• NPD and INV can be positive or negative!• This works at national, state, or local level © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 5
  6. 6. Housing Demand: The Simple MathNPD = Current (Population by Age Class * Headship Rate by Age Class) – Prior (Population by Age Class * Headship Rate by Age Class) Thus 2 things cause the basic new population demand to be positive; home ownership age population rises and/or headship rates increase• This is very stable and predictable.• Supports roughly 1.35 million units per year in US on current trend basis. © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 6
  7. 7. Population: Natural growth + Immigration Immigration at state or local level means “out of area” © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 7
  8. 8. Population Growth Leads toHousehold Growth © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 8
  9. 9. Headship Rate is Key to HouseholdFormation © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 9
  10. 10. Housing Starts: The Simple MathNew Housing Starts = New Housing Demand - Manufactured Home Placement• Last step is “Split Between Single and Multi- Family” © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 10
  11. 11. The Basic Demand in US Optimistic! © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 11
  12. 12. Investment Demand Surged Investment: 1.4 Mil+ Trend Scrappage © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 12
  13. 13. Housing Demand: The Simple MathNew Housing Demand = Scrappage + New Population Demand + 2nd Home/Investment Demand = S + NPD + INV• NPD and INV can be positive or negative! Prior year’s demand becomes current years’ supply!!!!! © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 13
  14. 14. How does new population demandbecome negative? © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 14
  15. 15. Idaho Statesman Briefing 5/10/2011 15
  16. 16. Keys• Unprecedented low real interest rates – lead to• Overheated demand in single family housing – Spurred by investment demand • Alternatives • Tax Treatment • View of “Can’t lose appreciation” • Enabled a lot of “move-up activity” – Spurred by unnatural home ownership rates• Loose lending standards – Spurred by mortgage backed securities – View of “No risk appreciation” – “Creative lending” – ARMS, teaser rates, interest only loans, etc – Competitive returns to shareholders among lenders – Note – loose lending requires “loose borrowing standards” © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 16
  17. 17. Cheap money ….. Boosts homeownership and investment © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 17
  18. 18. Can’t Lose on Housing ……… Where did this money go? © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 18
  19. 19. 0.00 100.00 150.00 200.00 250.00 50.00 January 1987 January 1988 January 1989 January 1990 January 1991 January 1992 January 1993 January 1994 January 1995 January 1996 January 1997 Source: http://www.standardandpoors.com/ January 1998 January 1999 January 2000 Composite 10 January 2001 January 2002 Idaho Statesman Briefing 5/10/2011 January 2003 January 2004 January 2005 January 2006 S&P/Case-Shiller Home Price Indices: January 2007 January 2008 January 2009 January 2010 January 2011 What goes up, must come down … 19© Brian J. Greber 2011
  20. 20. Housing Affordability Recovering 80.0 NAHB/Wells Fargo Housing Opportunity Index: % of Houses Sold Affordable to Median Income Household 75.0 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 20
  21. 21. But supply still outstrips demand • Upside down loans • Lack of investment interest – Keeps surge in foreclosures and investment liquidation – i.e., NPD and INV weak or negative © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 21
  22. 22. Creative Financing: Force refinanceof upside down mortgages © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 22
  23. 23. Creative Financing: Uncreative Foreclosure © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 23
  24. 24. 0 100 200 300 400 500 600 99:Q3 99:Q4 00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4 02:Q1 New Supply 02:Q2 02:Q3 02:Q4 03:Q1 03:Q2 03:Q3 03:Q4 04:Q1 04:Q2 04:Q3 04:Q4 05:Q1 05:Q2 05:Q3 Source:http://data.newyorkfed.org/creditconditions/ 05:Q4 06:Q1 06:Q2 06:Q3 06:Q4 US Foreclosures in Thousands 07:Q1 07:Q2 Idaho Statesman Briefing 5/10/2011 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 Foreclosures = Negative Demand =© Brian J. Greber 2011 24
  25. 25. What Caused the Collapse?• Housing Bubble – Artificial, not real demand supported housing quantity and price appreciation. – Investment-based saturation of housing market in “sunshine states”• Investment stops; • Home price appreciation stops – Investors begin to “sell off positions” – “demand became supply” as the base of existing homes for sale grew, » Home prices fall • Investments on a downward spiral• Homes significant part of economic engine • Slow down in economy generates unemployment• “Creative” Mortgages come up for refinancing – Mortgages “upside down” – house is worth less than current note, can only refinance portion of pay-off amount.• Unemployment, upside down mortgages lead to foreclosures – Foreclosure sales expanded the case of existing homes for sale, again “demand became supply” » Home ownership on a downward spiral © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 25
  26. 26. What Caused the Collapse?• Banking Bubble – Can’t lose investments became bad debt – Bad debt position froze ability of banks to lend, despite low interest rates – Fear of bank solvency heightened through press, had some withdrawing their assets from the financial system • Further hampering lending ability• Bank Lending constraints further slowed down housing activities – E.g., jumbo loans © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 26
  27. 27. Who was at fault? • Fed(s) – Create banking rules – Allowed Mortgages backed securities – Created tax policies favoring real estate investment • Financial Investors – Pressures on banking community to perform • Individuals – Consumption habits – Ill founded economic investment assumptions • Banks – Adopting unnecessary risk positions. © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 27
  28. 28. What Now • Stem foreclosures • Shore up bank reserves • Absorb excess housing stock • Rebuild to meet demographics • Reset relending standards • Consumers reset borrowing standards • Confidence in system rebuilds • Several Year Process – but will happen © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 28
  29. 29. ID Permits vs Population Change Idaho Population Change & Housing Permits 22,000 Our own 52,000 investment 17,000 demand 42,000 32,000 12,000Population Change Housing Permits 22,000 7,000 12,000 2,000 2,000 (8,000) -3,000 Population Change Housing Permits Source: Population US Census Bureau, Permits US HUD (huduser.org) © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011
  30. 30. Idaho among the worst in foreclosuresSource: http://www.realtytrac.com/ © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 30
  31. 31. Monthly Idaho Building Permits:Far from out of the woods Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 Total Units 1,082 1,354 1,792 1,762 1,894 1,895 1,806 2,328 1,942 1,684 1,443 1,174 20,156 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 Total Units 1,311 1,247 1,569 1,499 1,817 1,452 1,315 1,349 1,185 990 898 739 15,371 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 Total Units 819 828 1,335 947 1,350 983 1,007 839 668 645 578 601 10,600 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 Total Units 366 454 622 643 608 781 488 453 446 341 237 240 5,679 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 Total Units 430 164 254 364 342 444 506 528 404 327 308 231 4,302 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 Total Units 286 271 444 481 327 408 253 213 247 241 390 159 3,720 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 Total Units 157 212 229 0 0 0 0 0 0 0 0 0 598 Source: US HUD (huduser.org) © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 31
  32. 32. Keys to Idaho Housing Recovery • National housing market recovery – Immigration spurred by housing liquidity in other states • Influences retirement, second homes, business relocation • Local employment strength – Drives household formation – Ownership rates – Stems foreclosures • Foreclosure relief (?) • “Devouring the Inventory Overhang” – 1+ years worth of housing activity © Brian J. Greber 2011 Idaho Statesman Briefing 5/10/2011 32

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