Housing Market 101
Brian Greber, Director
Center for Business Research &
Economic Development
College of Business & Economics
Boise State University
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 20111
INTRODUCTION• Brian Greber, Ph.D.
– B.S. Forestry (WVU)– M.S. (WVU), Ph.D.(VT) Resource Economics– 19 years industry/executive experience (most recently
VP Marketing & Technology in a Fortune 100 Forest Products Firm (Weyerhaeuser))
– With Boise State since November 2009– 14 years teaching, research, policy experience at
universities (VT, OSU, BSU, CTU)• Lots of public policy work at the state & federal
levels– Have own business focused on Organizational
Effectiveness– Achieved Visions™– STAR Motorcycle Safety Instructor– President of the Board of Directors of The Arc– Live in Boise – avid fitness buff and enjoy most things
outdoors– Great family – 2 kids and “lifelong best friend”
© Brian J. Greber 20112
Idaho Statesman Briefing 5/10/2011
Today
• Goals– Provide a basis for thinking through housing markets in general
– Systematically discuss the “melt down”
– Think about what will drive housing in the Treasure Valley and Idaho in the next 5 years
– Forge an on-going relationship between The Idaho Statesman and COBE/BRED
• This is not meant to be tomorrow’s story
• Focus will be national – Idaho will not correct until the national situation corrects (Idaho will lag)
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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What Happened in US Housing?
Economists Knew There was an Overbuild, They Missed the Melt Down
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Housing Demand: The Simple Math
New Housing Demand =
Scrappage +
New Population Demand +
2nd Home/Investment Demand =
S + NPD + INV
• S in US estimated between 190-250 thousand/year. Large component multifamily and manufactured housing
• NPD and INV can be positive or negative!
• This works at national, state, or local levelIdaho Statesman Briefing 5/10/2011
© Brian J. Greber 20115
Housing Demand: The Simple Math
NPD =
Current (Population by Age Class * Headship Rate by Age Class) –
Prior (Population by Age Class * Headship Rate by Age Class)
Thus 2 things cause the basic new population demand to be positive; home ownership age population rises and/or headship rates increase
• This is very stable and predictable.
• Supports roughly 1.35 million units per year in US on current trend basis.
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Population: Natural growth + Immigration
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Immigration at state or local level means “out of area”
Population Growth Leads to Household Growth
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Headship Rate is Key to Household Formation
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Housing Starts: The Simple Math
New Housing Starts =
New Housing Demand -
Manufactured Home Placement
• Last step is “Split Between Single and Multi- Family”
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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The Basic Demand in US
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Optimistic!
Investment Demand Surged
Trend
Investment:1.4 Mil+
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Scrappage
Housing Demand: The Simple Math
New Housing Demand =
Scrappage +
New Population Demand +
2nd Home/Investment Demand =
S + NPD + INV
• NPD and INV can be positive or negative! Prior year’s demand becomes current years’ supply!!!!!
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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How does new population demand become negative?
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Idaho Statesman Briefing 5/10/2011 15
Keys• Unprecedented low real interest rates – lead to
• Overheated demand in single family housing– Spurred by investment demand
• Alternatives
• Tax Treatment
• View of “Can’t lose appreciation”
• Enabled a lot of “move-up activity”
– Spurred by unnatural home ownership rates
• Loose lending standards– Spurred by mortgage backed securities
– View of “No risk appreciation”
– “Creative lending” – ARMS, teaser rates, interest only loans, etc
– Competitive returns to shareholders among lenders
– Note – loose lending requires “loose borrowing standards”
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Cheap money ….. Boosts home ownership and investment
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Can’t Lose on Housing ………
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Where did this money go?
What goes up, must come down …
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S&P/Case-Shiller Home Price Indices: Composite 10
Source: http://www.standardandpoors.com/
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Housing Affordability Recovering
30.0
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80.0 NAHB/Wells Fargo Housing Opportunity Index: % of Houses Sold
Affordable to Median Income Household
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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But supply still outstrips demand
• Upside down loans
• Lack of investment interest– Keeps surge in foreclosures and investment
liquidation
– i.e., NPD and INV weak or negative
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Creative Financing: Force refinance of upside down mortgages
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Creative Financing: Uncreative Foreclosure
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Foreclosures = Negative Demand = New Supply
0
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60099
:Q3
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US Foreclosures in Thousands
Source:http://data.newyorkfed.org/creditconditions/
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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What Caused the Collapse?• Housing Bubble
– Artificial, not real demand supported housing quantity and price appreciation.
– Investment-based saturation of housing market in “sunshine states”
• Investment stops;• Home price appreciation stops
– Investors begin to “sell off positions” – “demand became supply” as the base of existing homes for sale grew,
» Home prices fall
• Investments on a downward spiral
• Homes significant part of economic engine• Slow down in economy generates unemployment
• “Creative” Mortgages come up for refinancing– Mortgages “upside down” – house is worth less than current note, can only refinance
portion of pay-off amount.
• Unemployment, upside down mortgages lead to foreclosures– Foreclosure sales expanded the case of existing homes for sale, again “demand became
supply”
» Home ownership on a downward spiral
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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What Caused the Collapse?
• Banking Bubble– Can’t lose investments became bad debt
– Bad debt position froze ability of banks to lend, despite low interest rates
– Fear of bank solvency heightened through press, had some withdrawing their assets from the financial system
• Further hampering lending ability
• Bank Lending constraints further slowed down housing activities
– E.g., jumbo loans
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Who was at fault?• Fed(s)
– Create banking rules
– Allowed Mortgages backed securities
– Created tax policies favoring real estate investment
• Financial Investors– Pressures on banking community to perform
• Individuals– Consumption habits
– Ill founded economic investment assumptions
• Banks– Adopting unnecessary risk positions.
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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What Now
• Stem foreclosures
• Shore up bank reserves
• Absorb excess housing stock
• Rebuild to meet demographics
• Reset relending standards
• Consumers reset borrowing standards
• Confidence in system rebuilds
• Several Year Process – but will happen
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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ID Permits vs Population Change
-3,000
2,000
7,000
12,000
17,000
22,000
(8,000)
2,000
12,000
22,000
32,000
42,000
52,000
Hou
sing
Per
mit
s
Popu
lati
on C
hang
e
Idaho Population Change & Housing Permits
Population Change Housing Permits
Source: Population US Census Bureau, Permits US HUD (huduser.org)
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
Our own investment demand
Idaho among the worst in foreclosures
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Source: http://www.realtytrac.com/
Monthly Idaho Building Permits: Far from out of the woods
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005
Total Units 1,082 1,354 1,792 1,762 1,894 1,895 1,806 2,328 1,942 1,684 1,443 1,174 20,156
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006
Total Units 1,311 1,247 1,569 1,499 1,817 1,452 1,315 1,349 1,185 990 898 739 15,371
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007
Total Units 819 828 1,335 947 1,350 983 1,007 839 668 645 578 601 10,600
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008
Total Units 366 454 622 643 608 781 488 453 446 341 237 240 5,679
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009
Total Units 430 164 254 364 342 444 506 528 404 327 308 231 4,302
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010
Total Units 286 271 444 481 327 408 253 213 247 241 390 159 3,720
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Total2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011
Total Units 157 212 229 0 0 0 0 0 0 0 0 0 598
Source: US HUD (huduser.org)
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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Keys to Idaho Housing Recovery
• National housing market recovery– Immigration spurred by housing liquidity in other states
• Influences retirement, second homes, business relocation
• Local employment strength– Drives household formation
– Ownership rates
– Stems foreclosures
• Foreclosure relief (?)
• “Devouring the Inventory Overhang”– 1+ years worth of housing activity
Idaho Statesman Briefing 5/10/2011 © Brian J. Greber 2011
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