US Housing: A Complete Assessment


In past market corrections and crashes, Housing was the economic indicator to provide an early warning to economic upturns but 2008 was caused by Housing. Housing as a stand alone indicator must be viewed in relation to rentals and rental rates to determine an economic assessment as Housing supply and ownership appears inversely related to rentals. Most important is supply Vs rentals. Further, Housing is a worldwide phenomenon and affects all nations which means a problem and/or success in one nation experiences the same effects in other nations.

The other question to Housing V Rentals is overall Household Debt and recently mentioned in the RBA minutes as an overall economic concern. The current United States Household Debt is an equal issue as current Debt runs to 12.73 trillion, up 149 billion and +50 billion from the previous peak in 2008 as reported by the New York Fed. Mortgages as the main indicator rose 1.7% followed by + 0.9 in Auto Loans and + 2.6 in Student Loans. Credit card debt fell 1.9% this quarter. Two of the 3 main categories are backed by an asset class and Housing is the largest in the division.

Why not measure Auto Loans as an economic indicator as recommended by Danielle DiMartino in “Fed Up” is because loans are small and it fails to tie the nations together as does Housing for a larger economic connection. Same principle to Student Loans due to its nation specific focus.

When America’s Bummer hijacked Student Loans from the traditional domain of banks, the Federal Government became the exclusive lender and changed lending terms as well as added borrower categories. The Federal Government supplied 3/4 of Student Loans and mandated students pay 1/4. Students received 3/4 of an education and never graduated as most lacked ability to pay 1/4 of required classes to graduate. The result and not from official statistics is 44 million students owe $1.4 trillion in Student loans under an 11% delinquency rate.

Not only is $1 trillion a small part of the overall $12.7 trillion Household debt but Student Loans as a Socialist / Social Justice issue entered the presidential campaign as Democrats advocated Student Loan forgiveness and free college as policy in order to buy Democrat Party votes.

Housing policy in Australia and New Zealand placed higher down payments, 20%, on house purchases to slow Housing markets in Sydney and Canterbury. Mortgage rates in Australia on 5 year loans shot higher to 4.5%, New Zealand 6% Vs 3.9% in the United Sates for a 30 year Fixed rate Mortgage and 3.14% for a 5 year Adjustable Rate. What tightly binds the nations is interest rates and in this instance, closely aligned Mortgage Rates.

Historically, Slick Willie Clinton in 1995 renewed Democrat President Jimmy Carter’s 1978 Community Reinvestment Act against a Socialist/ social justice turn to reinvent communities to produce results. Banks doing business with Government were forced to lend inside newly created poor Red Line Districts and lend to any person with a job and small down payment as lending standards changed. No bank, Mortgage or lending company held the risky loans so sold the loans in packages. The result was not only the Housing crash in 2008 but Slick Willie would become the first Democrat to win a second term from the 1996 elections since Franklin Roosevelt in the 1930’s.

Homeownership rates skyrocketed from 63.8% in 1995 to 69.2% in 2008 and the highest level ever recorded from 62.9% in 1965 to 2017 in the current day. The current Homeownership rate from Q2 2017 is 63.7%, 0.8% higher than 62.9% in Q1 2017 and no difference from 63.6% in Q2 2016. In comparison, the Homeownership rate at the Great Depression lows in 1940 was 43.6%, 55% in 1950, 61.9% in 1960 and 65.3% in 1970. From 1960 to 2000, Homeownership rates ranged from 61.9% to 66.2%.
The current Median Asking Price for Vacant sale units as classified by the US Census is $177,200. The Ask Price in 1995 was $75,000 and $100,000 in 2001. By 2008, the Ask Price was $200,000 and more than double since 1995. Since 2008, the Ask price stabilized from $140,000 lows to current highs at $177,000.

The actual Median Sold price in January 2017 was $317, 400 and close to $332,700 in December 2016 and the highest recorded value since January 1963 at $17,200. The 53 year mid point from $332,700 to $17,200 is located at $174, 950. In 1995, Median sold prices hovered from January lows at $127,900 to $135,200 in October 1995. By the 2008 crash, the Median sold price rose to $221,000.

In January 1975, the US Census began tracking average prices in relation to Medians and this is where the House price is seen because average prices began skyrocketing above Median prices. In January 1975, the Median sold price was $37,200 in relation to the $39,500 average.

By January 1995, the Median sold price was $127,900 against the $147, 400 average. In August 2008 at crash time, the Median sold price was $221, 000 matched against an average price of $265,500, a difference of $44,000. The June 2017 Median sold price was $310, 800 and $379, 500 as the average price and a difference of $69,000. From current $379, 500 to $39,500, the mid point is located at $209,500. At $209,500 matches closely to the January 2009 Median sold price at $208,600.
The supply of houses, factored as houses for sale to houses sold, dived at the time of Slick Willie’s passage of the 1995 CRA. The supply informs how many months from for sale to actual sold on the market. The typical average is 5 months. Below 5 months means the Housing market contains more buyers than sellers and above 5 means more sellers than buyers.

The CRA passage dive went from 6.8 months in 1995 to 3.8 in December 1998 and 3.6 months by January 2003. By August 2008, House buyers disintegrated as the supply rose to 11.3 months and peaked in January 2009 at 12.2. In June 2017, the supply now stands at a balanced 5.4 months.

In Q2 2017, the Median Asking rent price stands at $910, up from $400 in 1995, $500 in 2000 and $700 in 2007. Rents more than doubled since 1995. Since 2008, rents ranged from $700 to $900. The Median for sale Ask price also ranged from current $177,200 to $140,000 lows.

The Rental Vacancy Rate in Q2 2017 stands at 7.3% which means 7.3% of rentals are vacant. In Q1 2017, the Vacancy Rate was 7.0% and 6.7% in Q2 2016. Outside United States cities, the Vacancy rate is 8.8%. The Q2 2017 Homeownership Vacancy Rate sits at 1.5% and down from 1.7% in Q1 2017 and Q2 2016. In the Southern United States, the Rental Vacancy Rate is 9% and Homeownersip Vacancy Rate at 1.8%.

In Q2 2017, 87.1% of Houses were occupied and 12.9% were vacant. Owners occupied 55.5% of houses and renters occupied 31.6% of the total inventory. Vacant year round houses stand at 9.8% and 3.1% are seasonal which means Fishing lodge type dwellings. Poor renters dominate the market.

In Q2 2017, House inventory stood at 135,546 and down from 136, 456 in Q1 2017. Vacant was 17,206 houses and 3,216 were for rent followed by 1,306 houses for sale.

Fred and the National Association of Realtors reports June 2016 existing home sales at 2, 110,000, dropped to 1,650,000 in December 2016 then rose to current 1, 960,000.

The 30 year Fixed Rate Mortgage in October 1981 stood at 18.45%, 9.20% in December 1994 and 9.15% in January 1995. In May 2000, the rate stood at 8.52 and 6.48% at the 2008 crash. The 30 year Fixed Rate Mortgage today just broke 4.00% to current 3.9%.

From 1 house for sale it takes from Permit to build on average 8 months, 9 months for Contractors and 1 year and 3 months for owners to build. From build to completion, it takes on average 5.8 months, 7.8 months for contractors and 11.5 months for owner build.

Main problem in House markets especially in fast growing areas is lack of Single Family homes. The vast majority of House demand is the Single Family home yet in many markets, Single Family Homes are non existent. Charlotte North Carolina and roughly within a 50 mile radius, the Single Family home for purchase is impossible. Further, Single Family homes in many areas are not slated to be built anytime soon. This leaves many home buyers as renters.

To view population movements, Sociological paths, movements to and from cities then view the 1925 Concentric Zone Theory authored by Parks and Burgess from the University of Chicago. Possibly one would understand the larger view to Housing.


Brian Twomey