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BANKING AND THE ECONOMY: A FORUM FOR MINORITIES IN BANKING Three Important Housing Questions

Join us for a forum discussing three important housing questions: the best and worst housing markets, the impact of housing on the next recession, and the effectiveness of homeownership as a wealth-building strategy for minority families.

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BANKING AND THE ECONOMY: A FORUM FOR MINORITIES IN BANKING Three Important Housing Questions

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  1. BANKING AND THE ECONOMY: A FORUM FOR MINORITIES IN BANKING Three Important Housing Questions September 26, 2019 William R. Emmons Center for Household Financial Stability Federal Reserve Bank of St. Louis These views are mine alone.

  2. Three Important Housing Questions 1) Which U.S. housing markets offer the best (and worst) values right now? 2) Will housing cause the next recession? 3) Has homeownership been an effective wealth-building strategy, especially for minority families?

  3. WHICH HOUSING MARKETS OFFER THE BEST VALUE? Compared to ratios in 2000:Q1 of a) house prices to per-capita income and of b) apartment rent to per-capita income, how much had local housing-value ratios changed by 2019:Q1? This measure controls for differences in permanent local amenities like climate, cultural opportunities, taxes, etc. For a complete explanation, see my Oct. 2018 HMP article: https://www.stlouisfed.org/publications/housing-market-perspectives/2018/us-housing#table1.

  4. WHICH HOUSING MARKETS OFFER THE BEST VALUE? SOURCES: Federal Housing Finance Agency and Bureau of Economic Analysis.

  5. WHICH RENTAL MARKETS OFFER THE BEST VALUE? SOURCES: Bureau of Labor Statistics and Bureau of Economic Analysis.

  6. WHICH HOUSING MARKETS OFFER THE BEST VALUE? Midwest housing markets—both owner-occupied and rental—offer the best values. West Coast and South Florida markets offer the worst values. Large range in the Northeast—from high-value Newark and Montgomery County PA to low-value Philadelphia and Boston. Similar large range in the South: Atlanta and Charlotte offer good values; Austin and San Antonio are expensive.

  7. WILL HOUSING CAUSE THE NEXT RECESSION? • All post-WW II recessions were preceded by a housing downturn, but not all housing downturns resulted in a recession. • Housing is currently in a mild downturn. • Not as bad as 2006-12 • Worse than 2000-01 • Similar to 1989-91 • If we track 1989-91, recession could begin in late ‘19 or early ‘20.

  8. MANY HOUSING INDICATORS SHOW THE SLUMP • Watch cyclical trends in these nationwide housing indicators: • Mortgage rate • Existing home sales • Real house prices • Contribution of residential investment to GDP growth • See “Key Housing Indicators Weaken Further,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019 • Regional patterns are similar—all trending lower: • Total single-family home sales in four census regions • See “Recession Signals: Home Sales Trend Lower in All Four Regions,” https://www.stlouisfed.org/publications/housing-market-perspectives/2019/recession-signals-home-sales-lower

  9. SIMPLE DE-TRENDING OF HOUSING INDICATORS • For each indicator in each quarter, calculate the percent (or percentage-point) difference between the most recent quarterly (or four-quarter) value or rate from that of the prior three years. • Denote the first full quarter of NBER-defined recession in each historical cycle as quarter zero; negative quarters are before and positive quarters are after the recession onset (= quarter zero). • Assume the next recession will begin in 2019:Q4 (quarter zero).

  10. 30-YEAR MORTGAGE RATE Source: Freddie Mac First full quarter of recession: See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  11. 30-YEAR MORTGAGE RATE Source: Freddie Mac See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  12. 30-YEAR MORTGAGE RATE Source: Freddie Mac See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  13. 30-YEAR MORTGAGE RATE Source: Freddie Mac Latest quarter See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  14. EXISTING HOME SALES Source: National Association of Realtors See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  15. EXISTING HOME SALES Source: National Association of Realtors See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  16. EXISTING HOME SALES Source: National Association of Realtors See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  17. EXISTING HOME SALES Source: National Association of Realtors Latest quarter See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  18. REAL HOUSE PRICES Sources: S&P CoreLogic and Bureau of Economic Analysis See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  19. REAL HOUSE PRICES Sources: S&P CoreLogic and Bureau of Economic Analysis See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  20. REAL HOUSE PRICES Sources: S&P CoreLogic and Bureau of Economic Analysis See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  21. REAL HOUSE PRICES Sources: S&P CoreLogic and Bureau of Economic Analysis Latest quarter See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  22. RESIDENTIAL INVESTMENT Source: Bureau of Economic Analysis See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  23. RESIDENTIAL INVESTMENT Source: Bureau of Economic Analysis See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  24. RESIDENTIAL INVESTMENT Source: Bureau of Economic Analysis See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  25. RESIDENTIAL INVESTMENT Source: Bureau of Economic Analysis Latest quarter See “Key Housing Indicators Weaken Further in 2019,” https://www.stlouisfed.org/on-the-economy/2019/june/housing-indicators-weaken-2019

  26. SLOWDOWNS IN HOME SALES ACROSS REGIONS • A monthly, regional de-trended measure of housing activity: • New plus existing single-family home sales monthly annualized rates • Available in 4 census regions: Northeast, Midwest, South and West • Express on a per-capita basis to reflect differing population growth • Calculate % deviation of annualized rate during latest 12 months from annualized rate in three prior years (months -48 through -13) • Slowdowns are evident in all four regions as of July 2019 • Northeast: -6 percent (running below recent trend since Aug. 2018) • Midwest: -4 percent (running below recent trend since Oct. 2018) • South: -1 percent (running below recent trend since Feb. 2019) • West: -7 percent (running below recent trend since Oct. 2018)

  27. HOME-SALES MOMENTUM: NORTHEAST Sources: Census Bureau and National Association of Realtors Last month of economic expansion: Latest month See “Recession Signals: Home Sales Trend Lower in All Four Regions,” https://www.stlouisfed.org/publications/housing-market-perspectives/2019/recession-signals-home-sales-lower

  28. HOME-SALES MOMENTUM: MIDWEST Sources: Census Bureau and National Association of Realtors Last month of economic expansion: Latest month See “Recession Signals: Home Sales Trend Lower in All Four Regions,” https://www.stlouisfed.org/publications/housing-market-perspectives/2019/recession-signals-home-sales-lower

  29. HOME-SALES MOMENTUM: SOUTH Sources: Census Bureau and National Association of Realtors Last month of economic expansion: Latest month See “Recession Signals: Home Sales Trend Lower in All Four Regions,” https://www.stlouisfed.org/publications/housing-market-perspectives/2019/recession-signals-home-sales-lower

  30. HOME-SALES MOMENTUM: WEST Sources: Census Bureau and National Association of Realtors Last month of economic expansion: Latest month See “Recession Signals: Home Sales Trend Lower in All Four Regions,” https://www.stlouisfed.org/publications/housing-market-perspectives/2019/recession-signals-home-sales-lower

  31. HAS HOMEOWNERSHIP BUILT WEALTH? Homeowners’ equity (HOE = House value – Mortgage debt) is a major component of household wealth. But HOE has increased less, with more volatility, than all other household wealth (collectively), especially for minority families. For a fuller discussion, see my Nov. 2017 HMP article: https://www.stlouisfed.org/publications/housing-market-perspectives/2017/homeownership-bad-for-wealth-accumulation

  32. HOMEOWNERS’ EQUITY: LOW RETURN, HIGH RISK See “Is Homeownership Bad for Wealth Accumulation?” https://www.stlouisfed.org/publications/housing-market-perspectives/2017/homeownership-bad-for-wealth-accumulation

  33. BLACK FAMILIES’ HOE HIT HARD BY HOUSING CRASH See “Is Homeownership Bad for Wealth Accumulation?” https://www.stlouisfed.org/publications/housing-market-perspectives/2017/homeownership-bad-for-wealth-accumulation

  34. BLACK AND HISPANIC FAMILIES’ HOE VERY RISKY See “Is Homeownership Bad for Wealth Accumulation?” https://www.stlouisfed.org/publications/housing-market-perspectives/2017/homeownership-bad-for-wealth-accumulation

  35. HIGH RETURNS (AND RISKS) ON OTHER WEALTH See “Is Homeownership Bad for Wealth Accumulation?” https://www.stlouisfed.org/publications/housing-market-perspectives/2017/homeownership-bad-for-wealth-accumulation

  36. HIGH HOE SHARE REDUCES WEALTH GAINS, ADDS RISK See “Is Homeownership Bad for Wealth Accumulation?” https://www.stlouisfed.org/publications/housing-market-perspectives/2017/homeownership-bad-for-wealth-accumulation

  37. My Answers to Three Housing Questions 1) Which U.S. housing markets offer the best (and worst) values right now? Best: Midwest; Worst: Far West and South Florida. 2) Will housing cause the next recession? Not by itself but it will contribute, especially in the West. 3) Has homeownership been an effective wealth-building strategy, especially for minority families? No—excessive investment in housing has lowered wealth gains and added risk to many non-white families’ balance sheets.

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