Real Estate Data for the Rest of Us

Can Any Local Market Predict National Home-Price Trends?

Pay extra attention to Minneapolis-St. Paul home prices – they are the best local indicator of what will happen to national home prices one year later. Home price trends in Texas, however, are a terrible guide to what’s in store for the rest of the country.

Wouldn’t it be nice if there were a local housing market that we could use as the nation’s crystal ball? If one market regularly ran ahead of the national trends, we could pay extra attention to what’s happening there in order to know what the rest of the country should expect. During the housing bubble and bust over the last decade, there were clearly markets – like Las Vegas – that had more extreme swings in prices than others did, but being more extreme isn’t the same as being first.

To see which markets – if any – tend to get ahead of the national trend, we looked at home-price changes between 1980 and 2014 in the 100 largest U.S. metros and the U.S. overall, using the Federal Housing Finance Agency (FHFA) home-price index. Our crystal-ball score, calculated for each metro individually, is the correlation between the year-over-year home price change in that metro with the year-over-year home price change for the U.S. overall one year later. In other words, we’re measuring how closely the ups and downs in a local market’s home prices match the national ups and downs one year later. Remember that correlations range from 1 to -1: the higher the correlation, the stronger the forecast. A negative correlation means that a better year for a metro’s home prices is typically followed by a worse year for the nation’s home prices (and vice versa).

The Crystal Ball Award Goes to the Twin Cities
Among the 100 largest metros, the housing market with the highest crystal-ball score is Minneapolis-St. Paul. Other markets that are relatively good bellwethers include San Diego, Ventura County, and Sacramento in California; West Palm Beach and three other Florida metros; Washington, DC; and St. Louis. In general, these markets had a more severe housing bust last decade and faster historical price growth over the past three decades than other markets. But it’s an eclectic bunch, with St. Louis, Washington, and Minneapolis-St. Paul having had a milder bust than the markets in California and Florida.

# U.S. Metro Crystal-ball score: Correlation of local price change with following year’s national price change
1 Minneapolis-St. Paul, MN-WI 0.79
2 San Diego, CA 0.76
3 West Palm Beach, FL 0.76
4 Cape Coral-Fort Myers, FL 0.73
5 Ventura County, CA 0.73
6 Washington, DC-VA-MD-WV 0.72
7 Sacramento, CA 0.72
8 Palm Bay-Melbourne-Titusville, FL 0.71
9 North Port-Bradenton-Sarasota, FL 0.71
10 St. Louis, MO-IL 0.71

This graph shows what a 0.79 correlation actually looks like. Year-over-year home prices in Minneapolis – St. Paul tend to look like national changes but a little bit ahead:

AheadofCurve … continue reading

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Cutting Housing Costs When Financial Hardship Strikes

If forced to spend less on housing, people would rather change where they live than whom they live with. Downsizing is the #1 way people would reduce their housing costs. Furthermore, renters are significantly more willing to move or get a roommate than homeowners are.

In good economic times as well as in bad, financial hardship can always strike. And when it does, people might have to cut back on housing, which is typically the largest household expense. However, cutting housing costs involves hard tradeoffs: moving can be expensive and a hassle, and living with family, friends, or strangers can be a challenge. To understand how people might make these tradeoffs, we asked 2,048 Americans in late March and early April 2014 the following question:

“If you experienced a major financial hardship (e.g., lost your job, unexpected medical bills), and you needed to cut back significantly on your housing costs, which of the following would you most likely do? Please select all that apply.”

Here’s what they told us.

Everyone’s Top Cost-Cutting Strategy: Downsizing
Facing financial hardship that required cutting back on housing, nearly 2 in 5 people (38%) would move to a smaller home — more than any other option by a wide margin. In fact, twice as many people would prefer downsizing than the next most popular actions of (1) renting out part of their home to a roommate or housemate or (2) moving to a more affordable neighborhood. Far fewer people would take the more radical actions of living in their car or not paying the rent or mortgage.

How Would You Cut Your Housing Costs If Hit With A Major Financial Hardship? Share
Move to a smaller home/apartment 38%
Rent out part of my home to a roommate/housemate 19%
Move to a more affordable neighborhood in the same city, metro area, or region 19%
Move to a more affordable city, metro area, or region 16%
Move into my parents’ home 14%
Move into my children’s (or other relative’s) home 8%
Rent out part of my home to vacationers/visitors 6%
Live in my car, office, or another place that’s not intended as housing 5%
Move into a non-relative’s home 4%
I would stay in my current home but stop paying the rent or mortgage 4%

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The Recession’s Lost Generation of Homeowners Isn’t Millennials – It’s the Middle-Aged

Though the published homeownership rate for young adults is still falling, true homeownership among young adults started rising in 2013. Adjusted for longer-term demographic shifts, young-adult homeownership is now at pre-bubble levels, but middle-aged homeownership is lagging.

The latest Census data shows homeownership is still falling for young adults, and the National Association of Realtors (NAR) reports that the share of first-time home-buyers is slipping. While the housing market is clearly improving, with four of the five key indicators of the housing recovery from our Housing Barometer at least halfway back to normal, it looks like the recovery is happening even without much improvement in first-time homeownership. Does that mean the housing recovery isn’t for real?

Not so fast. The official homeownership rate published by the Census gives a misleading picture of homeownership trends. In fact, homeownership among young adults is both on the rise and not too far off from where demographics say it should be. To see this, we did two things in this analysis: (1) account for changes in household formation to get a true measure of homeownership, and (2) adjust for longer-term demographic shifts to compare homeownership levels today with pre-bubble levels.

The answer: our “true” homeownership rate disagrees with the published homeownership rate, and shows that homeownership among young adults increased between 2012 and 2013 after hitting bottom in 2012. However, once we adjust for the huge demographic shifts among young adults – far fewer young adults are married or have kids than two or three decades ago – homeownership in 2013 was roughly at late-1990s levels. That means that the demographic shifts among young adults account for the entire decline in homeownership for 18-34 year-olds over the last twenty years. In other words, if the pre-bubble years of the late 1990s can be considered relatively normal, than today’s lower homeownership rate for young adults might be the new normal, thanks to demographic changes.

But that doesn’t mean all’s well. There may be longer-term damage to homeownership from the recession – but to the middle-aged, not millennials. Homeownership among 35-54 year-olds is lower today than before the housing bubble, even after accounting for demographic shifts. Here’s why.

Young Adult Homeownership Actually On the Rise
The published homeownership rate equals the share of households that own their home instead of rent. It does not, however, capture changes in whether people are dropping out of the housing market to live under someone else’s roof, like those millennials in their parents’ basement, who – in case you missed it – are for real. But if, say, people move out of their parents’ homes and into their own rental apartments, the published homeownership rate would still be falling even if the share of young adults who own remains the same.

Instead, we looked at the true homeownership rate, which equals the number of owner-occupied households divided by the number of all adults; in contrast, the published homeownership rate equals the number of owner-occupied households divided by the number of all households. Of course, the true homeownership rate is always going to be much lower – by half or more – than the published homeownership rate because there are roughly twice as many adults as there are households. The key point, though, is that the published and true homeownership rates can move in different directions if the number of adults per household is changing. That is, in fact, what happened during the recession and recovery (see note #1).

During the recession, as more young people moved in with their parents and fewer headed their own households, published homeownership rate fell from 44.1% in 2005 to 36.8% in 2012 – the 7-point decline was a 17% drop in homeownership. (What we’re calling “published” numbers actually differ slightly from the quarterly and annual homeownership estimates by age group published by the Census – see note #2.) However, the published rate understated the decline: the true homeownership rate for young adults fell from 17.2% in 2005 to 13.5% in 2012 – a drop of 22%.

Then, during the recovery, more young people started to form their own households, primarily as renters. The additional renters pushed the published homeownership rate for 18-34 year-olds down further in 2013 to its lowest level since our analysis begins in 1983:

PublishedHomeownership1834

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Despite Home Price Slowdown, Wages Can’t Keep Up With Prices

Asking home prices rose faster than wages in 95 of 100 metros. Still, home prices were flat or falling quarter-over-quarter in the formerly booming markets of Las Vegas, Phoenix, Sacramento, and Orange County.

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

Prices Rise 8.1% Year-over-Year in June
Both the quarter-over-quarter and year-over-year increases are lower than they were twelve months ago. In June 2014, prices were up 8.1% year-over-year and 2.6% quarter-over-quarter, compared with 9.5% and 3.1%, respectively, in June 2013.

But despite this national slowdown in price gains, price increases continue to be widespread, with 97 of 100 metros posting year-over-year price gains – the most since the recovery began. Furthermore, asking prices in June rose at their highest month-over-month rate (1.2%) in sixteen months.

Trulia_PriceMonitor_LineChart_June2014

June 2014 Trulia Price Monitor Summary
% change in asking prices # of 100 largest metros with asking-price increases % change in asking prices, excluding foreclosures
Month-over-month,
seasonally adjusted
1.2% N/A 1.2%
Quarter-over-quarter,
seasonally adjusted
2.6% 94 2.5%
Year-over-year 8.1% 97 7.4%
*Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

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Basement-Dwelling Millennials Are For Real

Although a key Census survey counts students in dorms as living with parents, increased college enrollment and dormitory living do not account for the increase in millennials living under their parents’ roofs. Alternative analyses confirm that in the recession millennials have been much more likely to live with their parents than in the past.

The share of millennials – that is, 18-34 year-olds – living with their parents reached a many-decade high during the recession. Last week, an article suggested that these statistics are “criminally misleading” in overstating the increase in millennials actually living with parents because (1) they count dorm-dwelling college students as living with their parents and (2) college enrollment among young people has risen significantly.

Both these points are true: the Current Population Survey’s (CPS) Annual Social and Economic Supplement (ASEC) counts college students who are living in dorms as living with their parents, and college enrollment has indeed gone up. But it does not follow that basement-dwelling millennials are a myth. The ASEC and other Census data show that after adjusting for college enrollment and for dormitory living, millennials were more likely to live with parents in 2012 and 2013 than at any other time for which a consistent data series is available (1986 or 1990, depending on the data source).

Revisiting the ASEC Data
The ASEC counts college students who are living in dorms as living with their parents, so it’s impossible to separate out the dorm-dwellers who were reported as living with parents from college students actually living with their parents full-time. But the survey also reports whether 18-24 year-olds are enrolled in college (in survey years 1986 onward). As a first step, we can exclude all full-time college students from the analysis to make sure we’re not including any dorm-dwellers. Excluding full-time college students, the share of millennials living with parents is still far higher during the recession than at any other time since 1986.

Shareof1824LivingWithParents

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