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What Really Mattered: Week of Sept 26-30, 2011

By | September 30, 2011

Welcome. Now that I’m getting settled in my role as Chief Economist at Trulia, I’m kicking off a series of blog posts on Trulia Insights that will sift through the week’s news and explain what really mattered.  Different news matters to different people: a trader dealing in real estate investment trusts (REITs) follows every fluctuation in every market indicator, but most of us only care about our local housing market and about the trends that are here to stay. I’ll look back at the week and point to new housing market and economic data that were especially surprising or important, and put it into context. I’ll also highlight insights that are under-the-radar but say something important about housing today and in the future. I’d love your feedback on these posts and any findings you come across that you think are worth discussing.

This week, some thoughts on the latest Case-Shiller home price index and shadow inventory data, as well as new findings that caught my eye about traffic congestion and the mortgage interest deduction:

First up: the S&P Case-Shiller index, an important measure of home price changes, increased for the fourth straight month. Celebrate? Not so fast. Prices usually rise more in these months than at others times of the year. From March to July (this week’s release was the July numbers), the index went up a total of 3.7% – that’s pretty good – but the seasonally adjusted index went up only 0.2%. This means that the 3.7% increase was almost all about the spring/summer bounce that happens most years rather than the beginning of a real long-term trend. One way to take out seasonality is to compare the index to the same time last year, and by that measure home prices fell 4.1%. Not so good.

Next up is the decline in shadow inventory. When there are more homes for sale than there are buyers in a market, prices stay low.  But in addition to homes actually on the market, there’s also the “shadow inventory”: homes that aren’t on the market today but probably will be because the homeowner is seriously behind on mortgage payments or the home is in foreclosure or has been taken back by the bank. A large shadow inventory, like a large listed inventory, keeps pressure on prices from rising. CoreLogic reported this week that the shadow inventory is down over 15% in July 2011 versus July 2010. But the current shadow inventory of 1.6 million is still much higher than before the housing crisis, when it was regularly under 500,000. This shadow inventory will have to shrink a lot more before prices really start moving up.

The Texas Transportation Institute published its annual report on traffic congestion. Having a short commute is a key factor in where people want to live. If you’re moving someplace new, you should know how much time you’ll spend in traffic; even if you’re not moving, trends in traffic congestion could affect your home’s value. So what happened to traffic last year? High unemployment means fewer commuters on the road and less congestion: the average commuter lost 34 hours in 2010 from being stuck in traffic, down from 39 hours in 2005. Commuters in Washington DC, Chicago and Los Angeles lost the most time due to traffic jams. Meanwhile, the folks who lost the least amount of time live in places with newer infrastructure, like Phoenix, or slower growth, like Detroit.

Rank Metro Area Hours Stuck in Traffic in 2010
1 Washington DC-VA-MD 74
2 Chicago, IL-IN 71
3 Los AngelesLong BeachSanta Ana, CA 64
4 Houston, TX 57
5 New YorkNewark, NY-NJ-CT 54
6 San FranciscoOakland, CA 50
7 Boston, MA-NH-RI 47
8 DallasFort WorthArlington, TX 45
9 Seattle, WA 44
10 Atlanta, GA 43
11 Philadelphia, PA-NJ-DE-MD 42
12 Miami, FL 38
13 San Diego, CA 38
14 Phoenix, CA 35
15 Detroit, MI 33
*Based on findings from the Texas Transportation Institute’s 2011 Urban Mobility Report


But if you can’t stomach listening to the traffic report and brake lights give you road rage, move to a smaller city: commuters in my hometown of Rochester NY spend only 13 hours a year in traffic, and those in McAllen TX, Stockton CA, and Eugene OR spend fewer than 10. And for those of you who can pick and choose your driving times, work from home on Friday and stay off the roads between 5-6 pm.

As the government fights over the federal budget deficit, the mortgage interest deduction – the ability to deduct your mortgage interest payments from your taxable income if you choose to itemize — is a tempting target for politicians: it lowers annual tax revenue by roughly $100 billion, and fewer than 30% of taxpayers even itemize their deductions in the first place. So who takes this benefit? This week, new research shows how much of this tax deduction goes to people in different parts of the country. The differences are huge: in high-income places with high homeownership rates, like the suburbs of Denver, Washington DC and Minneapolis, over 40% of filers claim the deduction, but fewer than 10% in places with low income or low homeownership, like parts of rural Texas and the poorer parts of New York City. Of those who do claim the deduction, the average amount ranges from over $20,000 in coastal California, where homes are expensive, to around $6,000 in rural upstate and western New York. Do these inequities mean that the mortgage interest deduction is doomed, and you itemizers will be paying more tax? No. Because politicians represent geographic areas, the concentration of the mortgage deduction benefits in specific areas means that representatives in those areas will fight hard to preserve the deduction: the mortgage interest deduction would be in greater danger if the same overall benefits were spread evenly across the country. Ironically, the inequity of the mortgage interest deduction boosts its chances for political survival.



— S&P/Case-Shiller index, September 2011 release

— CoreLogic shadow inventory report, September 2011

— Texas Transportation Institute’s 2011 Urban Mobility Report

— “The Geographic (and Political) Distribution of Mortgage Interest Deduction Benefits”, by Ike Brannon, Andrew Hanson, and Zackary Hawley