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articles about “Affordability

Blue Markets Face Bigger Housing Challenges Than Red Markets

Jed Kolko, Chief Economist
October 27, 2014

The housing crisis hurt Democratic- and Republican-leaning markets similarly, but today blue markets have lower affordability, lower homeownership, and greater income inequality.

As Election Day 2014 approaches, we see sharp differences in local housing markets depending on whether they are blue or red. As the political urgency of the housing crisis fades, longer-term issues like declining affordability, low homeownership, and rising inequality are taking center stage. And these issues play out differently in Democratic- and Republican-leaning metros.

To show this, Trulia categorized the 100 largest metros as red or blue depending on their 2012 presidential vote. In 32 metros—the red markets—the Republican candidate, Mitt Romney, got more votes than the Democrat, President Obama. These include places like HoustonCincinnati, and Salt Lake City. In 40 light-blue markets, including St. LouisAustin, and Buffalo, Obama beat Romney by less than 20 percentage points. And in 28 dark-blue markets, including Los AngelesNew York, and San Francisco, Obama’s margin exceeded 20 points.

When we looked at housing trends in these metros, we found that the housing crisis and recovery affected red and blue markets similarly. But today’s pressing housing issues are more severe in blue markets.

The Housing Crisis Hit Both Red and Blue America

When the housing bubble of the mid-2000s burst, both red and blue markets felt the pain. The markets with the most severe housing busts included dark-blue metros like Detroit and Oakland as well as red markets like Bakersfield and Cape Coral – Fort Myers, FL. The peak-to-trough price decline averaged 16% in red markets, 26% in light-blue markets, and 25% in dark-blue markets. But the relationship between price declines and redness or blueness was not statistically significant. (See note.)

Nor does the recent recovery show any clear bias toward red or blue markets. In September 2014, home prices were up 7.0% year-over-year in red markets, 6.2% in light-blue markets, and 6.3% in dark-blue markets. The markets with the largest price increases included red metros like Palm Bay-Melbourne-Titusville, FL, and Birmingham, AL, and dark-blue metros like Miami and Toledo, OH. The relationship between year-over-year price increases and 2012 voting patterns is not statistically significant. Another recovery measure, the share of homes in foreclosure, also doesn’t show a statistically significant correlation with 2012 voting patterns.

Key Housing Data in the Reddest Metros
U.S. Metro 2012 Vote Margin: Obama vs. Romney Price Decline in Housing Bust, Peak-to-Trough Year-Over-Year Price Change, Sept. 2014 Median Asking Price Per Square Foot, $
1 Knoxville, TN -34% -8% 2.1% $98
2 Tulsa, OK -32% -4% 7.3% $90
3 Greenville, SC -30% -8% 5.9% $92
4 Oklahoma City, OK -27% -3% 4.0% $98
5 Fort Worth, TX -23% -6% 6.4% $94
6 Salt Lake City, UT -21% -22% 4.7% $129
7 Colorado Springs, CO -21% -12% 4.0% $107
8 Birmingham, AL -20% -13% 11.5% $96
9 Jacksonville, FL -19% -38% 7.0% $109
10 Bakersfield, CA -17% -52% 8.2% $126

Note: among 100 largest U.S. metros. Reddest metros are those with highest negative margin for Obama vs. Romney in 2012. See blogpost note for data sources. Data for all 100 metros available here.

Key Housing Data in the Bluest Metros
U.S. Metro 2012 Vote Margin: Obama vs. Romney Price Decline in Housing Bust, Peak-to-Trough Year-Over-Year Price Change, Sept. 2014 Median Asking Price Per Square Foot, $
1 San Francisco, CA 58% -23% 9.9% $613
2 Oakland, CA 50% -39% 11.9% $342
3 New York, NY-NJ 49% -18% 4.3% $320
4 Detroit, MI 47% -40% 11.4% $75
5 San Jose, CA 42% -26% 8.6% $430
6 Los Angeles, CA 42% -35% 6.9% $334
7 Honolulu, HI 39% -11% 4.1% $439
8 Washington, DC-VA-MD-WV 37% -25% 3.2% $177
9 Fort Lauderdale, FL 35% -48% 6.9% $143
10 Seattle, WA 35% -26% 8.9% $197
Note: among 100 largest U.S. metros. Bluest metros are those with highest positive margin for Obama vs. Romney in 2012. See blogpost note for data sources. Data for all 100 metros available here.

 

 

Affordability Is a Bigger Problem for Blue Markets

Things look fundamentally different when we compare red and blue markets in terms of affordability and related measures. The tables above show that none of the 10 reddest markets had a median asking price per square foot above $130 in Sept. 2014. But nine of the 10 bluest markets did. Looking across all 100 largest metros, the correlation between price-per-square-foot and 2012 vote margin was positive, high (0.63), and statistically significant. In fact, the only expensive red market was Orange County, CA, at $363 per square foot. There was a huge drop-off to the next-most-expensive red market—North Port-Bradenton-Sarasota, FL, at $150 per square foot.

When we plot local market home price per-square-foot and the 2012 presidential vote, we see that most of the red metros are clustered in the lower left-hand corner of the figure, where prices were lowest.

margin-vs-ppf

Strikingly, housing costs nearly twice as much in dark-blue markets ($227 per square foot) than in red markets ($119).

MedianAskingPrice

Sure, households in blue markets tend to have higher incomes. But those higher incomes are not enough to offset higher home prices. Our middle-class affordability measure, which reflects the share of homes for sale within reach of a median-income household, is significantly lower in bluer markets. Furthermore, blue markets have lower homeownership and greater income inequality than red markets. As with affordability, the relationships between homeownership and inequality on one hand and 2012 voting patterns on the other hand are statistically significant.

What does all this mean? The point is not that Democrats cause expensive housing, lower homeownership, or greater inequality. Determining whether and how the political views of voters or their elected officials affect local housing markets is the stuff of scholarly research, not short blogposts. But because blue markets are less affordable, have lower homeownership, and have greater income inequality, political leaders in Democratic-leaning and Republican-leaning metros may push for different policies.

Furthermore, these local differences in home prices mean that some national housing policies favor red markets and others blue markets. For instance, the current system of conforming loan limits benefits red markets more because homes in those markets are likelier to fall within local loan limits. But the mortgage interest deduction benefits blue markets more, thanks to higher home prices and more residents in higher tax brackets. Such differences could make it harder to reform these long-standing policies. In short, the differences between blue and red local housing markets may add to the challenge of reaching agreement on national housing policies.

Note: Metro-level 2012 Presidential election data are aggregated from county-level data in the Atlas of U.S. Presidential Elections. Peak-to-trough price declines are calculated from the Federal Housing Finance Agency House Price Index. Year-over-year price changes and median asking prices per square foot are from the Trulia Price Monitor. Correlations mentioned in this post are metro-level, weighted by number of households in the metro, and statistically significant if p<.05. The correlation of price per square foot and vote margin is calculated using the natural log of price per square foot.

 

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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%

… continue reading

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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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Where Buying a Home is Within Reach of the Middle Class

More than four out of five homes for sale in Detroit and Cleveland are within reach of the middle class, compared with one out of four in New York and Los Angeles and one out of seven in San Francisco. Middle-class affordability is worsening in expensive markets and won’t improve long-term without more construction.

Where can the middle class afford to buy a home today? Affordability has worsened in the past year, as home prices have climbed faster than incomes and mortgage rates have risen. But compared with the longer-term past, homeownership still looks relatively affordable: home prices are still undervalued and mortgage rates remain near historic lows. In most U.S. markets, the majority of homes for sale are within reach of the middle class, and buying is cheaper than renting in all of the 100 largest metros.

However, in many markets, especially along the coasts, homeownership is out of reach for the middle class. Even having a college degree is no guarantee that homeownership is within reach in the priciest markets. There’s no easy way to make housing more affordable, though new construction can help.

As in our inaugural middle-class affordability report, we calculated the share of for-sale homes on Trulia that are affordable to a middle-class household, based on whether the total monthly payment – mortgage, insurance, and property taxes – was less than 31% of the metro area’s median household income. (See note below.) Because we define “middle class” separately for each metro based on the local median household income, our affordability measure takes into account that a middle-class income is higher in some markets than in others.

For instance, for a middle-class family in the Denver metro area, where median household income is just under $62,500, homes priced under $325,000 are within reach based on the 31% guideline. Of the homes listed for sale in Denver on May 6, 2014, 50% cost less than that – which means that half of Denver homes are within reach of the middle class.

Trulia_MiddleClassReport_Infographic

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How Special Are Million-Dollar Listings?

Homes that cost a million dollars or more are rare in most of the country but make up more than 20% of the for-sale market in San Francisco, Fairfield County, and San Jose. The typical million-dollar listing in New York is smaller than the average American home.

Close your eyes and imagine a million-dollar home. Depending on where you live, you might be picturing the modest three-bedroom down the street, or you might be thinking of a sprawling mansion. You might even be drawing a blank if you live in a market where million-dollar homes are almost unheard of.  While a home listed for a million dollars might cause just a shrug in some parts of California and New York, million-dollar homes are few and far between once you get more than a couple hours’ drive from an ocean. To see what a million bucks buys across the country, we calculated the share of for-sale listings on Trulia priced at or above $1,000,000 in each of the 100 largest metros, as well as the typical size of homes priced at or near the million-dollar mark, all as of March 3, 2014.

MillionDollarHomesComparison

In Most Metros, Million-Dollar Homes Represent Just a Sliver of the Market
Nothing drives home the huge differences in housing costs across the country more than how rare or common million-dollar homes are. Million-dollar homes account for more than 20% of listings in New York, neighboring Fairfield County, CT, and Long Island; in Orange County and Ventura County, on the southern California coast; and in San Francisco and San Jose. In fact, million-dollar homes make up close to half the San Francisco market, at 44%.

# U.S. Metro Share of for-sale listings priced at or above $1,000,000
1 San Francisco, CA

43.5%

2 Fairfield County, CT

29.7%

3 San Jose, CA

25.7%

4 Orange County, CA

24.4%

5 Ventura County, CA

21.5%

6 New York, NY-NJ

20.8%

7 Long Island, NY

20.5%

8 Honolulu, HI

19.8%

9 Los Angeles, CA

18.4%

10 San Diego, CA

18.0%

For the share of listings priced at or above $1,000,000 in all of the 100 largest metros, click here.

But in 68 of the 100 largest metros, million-dollar homes make up less than 5% of the for-sale market, including the major metros of Philadelphia, Chicago, Dallas, Houston, and Atlanta. Furthermore, million-dollar homes are less than 2% of the market in 44 of the 100 largest metros. … continue reading

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