Wednesday, June 28, 2017

Housing: Part 237 - Graphs from the ACS

I don't think I have shared these before.

This first one gives an indication of the "house as entry fee" phenomenon in the Closed Access cities.  This is a graph of the average home value, by owner income.  Most first and second quintile owners are older owners who bought their homes many years ago, so values are generally flat across the low quintiles.  Values tend to rise starting with the third quintile, increasing with each quintile....except for the Closed Access cities.

In the Closed Access cities, homes are toll gates to labor markets, and it appears that now, that toll is about $400,000.  So, owners across the bottom 80% of the income distribution all own homes with average values of about $400,000.  It is only households in the top quintile who are willing, in the aggregate, to spend more than the toll value for more shelter.

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The next graphs get at the issue of age.  The bust was largely a bust among young people.  This is a point of disagreement I have with Mian and Sufi.  They paint this as a story of rich vs. poor.  Rich households are savers and poor households are borrowers.  This is kind of true.  But, as JW Mason pointed out in the paper I linked to yesterday, this net debt distribution hides a lot of stuff going on at the gross level.  Actually, most debt is held by households with high incomes, and households with middle-to-high incomes tend to be the most leveraged.

More importantly, in terms of wealth, age is at least as important as income.  Older households tend to have high net worth and younger households tend to have low net worth.  We especially see this in the housing market, where young owners tend to be very highly leveraged and older owners tend to be unencumbered or lightly leveraged.  This is the overwhelming pattern in housing markets, and it did not shift during the housing boom.  There was an increase of young owners - mostly young households with high incomes - so, broadly speaking, older owners were either selling and claiming their capital gains or were sitting on homes with rising equity values and falling leverage, and there was somewhat of an influx of younger owners, who naturally initiate ownership with higher leverage.


idiosyncraticwhisk.blogspot.com   2017
Closed Access=Red, Open Access=Green, Contagion=Orange
idiosyncraticwhisk.blogspot.com   2017
Closed Access=Red, Open Access=Green, Contagion=Orange
In 2006 and 2007, the nation's newspapers were filled with stories of crazed speculators leveraging up homes to flip them, or families in financial distress using home equity to get by, or families recklessly using home equity to over-consume.  Those anecdotes just don't add up to much.  The American housing market is a Cape-size shipping vessel of enduring lifecycle trends, and all these anecdotes of excess and speculation were just so many barnacles that can't amount to much.  Tens of millions of older Americans own lightly encumbered homes and it would be mathematically implausible for tactical borrowers and speculators to amount to anything close to that in terms of market influence.  This is confirmed by the Survey of Consumer Finance, where leverage levels by age were generally stable until equity levels collapsed.

Anyway, back to Mian and Sufi, what this means is that the bust was not about rich vs. poor, but it was about old vs. young, and we can see in these graphs how home ownership among 55-65 year olds was largely unaffected by the housing bust.  That is because those owners have very high levels of equity.  Ownership of households over 65 years has actually risen.

Owners below 45 years of age, however, have been devastated.  Notice, also, that the decline in ownership is fairly proportional across incomes.  Some of this is from foreclosures and some of it is from a post-recession mortgage market that is stifling new ownership.  As a broad first estimate, we might consider the decline in ownership in the Open Access cities to be composed somewhat of foreclosures, but to mostly reflect limited mortgage access.  The deeper declines in the Closed Access and Contagion cities are likely mostly a reflection of higher foreclosures.

3 comments:

  1. In my pen-for-hire biz, I just wrote an 1,800-word opus on just this. Homeownership rates are plunging among the young. Buy upgradeable apartments in tight markets, btw.

    More young Mexicans and Chinese own homes than Americans (%-wise)!

    Simultaneously, income among the young Americans appears to be falling.

    This chart shows real median weekly wages, full time employed males, down since 1979.

    https://fred.stlouisfed.org/series/LES1252881900Q

    Young males make 31% less than in 1969, possibly, says Tyler Cowen.

    http://marginalrevolution.com/marginalrevolution/2016/05/what-in-the-hell-is-going-on.html

    So, the American macroeconomics profession says what we need to talk about is raising interest rates, gutting the minimum wage, and growing imports. More immigration will help too. Long papers full of calculus on the need for zero inflation is another career enhancer.

    I would say the generals are fighting the last war, but in this case the generals have formed a circular firing squad. The American public, unfortunately, is in the middle.

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  2. http://takimag.com/article/the_secret_history_of_the_21st_century_steve_sailer/print#ixzz4jxPLeNPO

    maybe...

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  3. Sorry, but this is from a writing project:

    "...for example, in Los Angeles County about 500,000 net new jobs have been created since 2010, but new housing production in the county is running around 20,000 units annually."

    So, let me guess what will happen to housing costs….hmmm. If we cut the minimum wage, that will help….

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