Transcript Mark Eppli Plenary Housing, Household Tenure Choice

Housing, Household Tenure Choice, and
the Locations We Choose
A Home for Everyone Conference 2014
Presented by: Mark J. Eppli
Interim Keyes Dean and Bell Chair in Real Estate
Marquette University
July 16, 2014
GDP and Jobs
The U.S. has maintained historically weak GDP growth in
the 2000s at 1.83%, versus 3.25% for the period 19802000 . . . .
Source: Federal Reserve of St. Louis.
. . . . which bring us to jobs . . . .
Source: St. Louis Federal Reserve.
. . . . however, the unemployment rate is not the whole
story, labor force participation rates are a concern . . . .
Source: St. Louis Federal Reserve
. . . . and the U.S. labor force participation rate declines are
in the young adult cohorts . . . .
Source: Vanguard’s Economic and Investment Outlook, January 2014, 16.
. . . . unemployment is not an equally distributed . . . .
Source: St. Louis Federal Reserve
GDP and employment take-aways:
• U.S. GDP growth is slowly growing;
• Unemployment rate declines overstate the health
of the jobs market;
• Much labor force slack exists;
• High school graduates struggle to find familysupporting job; and
• Without solid job growth there will not be
household growth
Wealth and Income
Net worth is back.
Home prices were
up 13.6% in 2013
and stocks had
their best year
since 1997 with a
31.9% total return
increasing
household wealth.
...
Source: WSJ, December 10, 2013, A2.
. . . . however the net worth of U.S. families is highly
concentrated . . . .
Source: Marty Hart-Landsberg, Lewis and Clark University.
. . . . Net worth
of the bottom
portion of the
wealth
spectrum is
heavily housewealth
dependent and
18.8% of
houses are
underwater . . .
Source: Pew Research Center.
. . . . 39% of households have less than $25,000
in net worth . . . .
. . . . making a 20% house down payment is
unreachable for 39% of households . . . .
Source: National Association of Realtors
. . . .which limits existing home sales . . . .
Source: National Association of Realtors
. . . . real compensation has been stagnant since 1973,
making debt service payments more difficult . . . .
Source: Lawrence Mishel, Economic Policy Institute, April 26, 2012.
Wealth and income take-aways:
• Net worth of U.S. households now exceeds 2007
in real and nominal terms;
• 28% of the U.S. net worth is held by the bottom
90% of the population;
• 39% of households have a net worth of less than
$25,000;
• Real compensation has stagnated;
• Which limits housing sales and house price
growth.
Interest Rates and Inflation
Mortgage interest rates remain low . . . .
Source: St. Louis Federal Reserve
. . . . due to low inflation in the U.S. Over the
past 20 years inflation averaged 1.88% . . . . .
Source: Federal Reserve of St. Louis.
. . . . with ample labor, unit labor costs are wellbehaved . . . .
Source: Federal Reserve of St. Louis.
. . . . and commodity prices are relatively stable. . . .
Source: Federal Reserve of St. Louis.
. . . . longer-term interest rate should remain range
bound in the +/-2.54% 10-UST rate given the
generally slack labor markets and continued
productivity that generate low global and U.S.
inflation.
Mortgage Underwriting
Underwriting standards have not eased . . . .
Source: Wall Street Journal, March 22, 2014.
. . . . a closer
look at recent
tightening of
underwriting
standards . . . .
Source: Wall Street Journal, June 9, 2014.
. . . . more evidence of tight lending markets . . . .
Source: Federal Reserve of St. Louis.
. . . . which ultimately limits new entrants to the
market . . . .
. . . . with the lock-in effect limiting new home
sellers willing to list their homes for sale . . . .
Household mobility falls by 7.5 percent for
every percent increase in interest rates.
Source: Research by Shilling and Hendershott, Washington Post, March 22, 2014.
. . . . however, household debt service as a percent of
disposable income remains very low . . . .
Source: Federal Reserve of St. Louis.
Mortgage underwriting take aways:
• Mortgage underwriting standards tightened in 20072010;
• Underwriting standards have not eased much since;
• Limiting new entrants to the housing market.
Single-Family Housing Market
Fundamentals
Home prices are at pre-bubble levels . . . .
. . . . with the excess supply of homes absorbed . . . .
Source: Federal Reserve of St. Louis.
. . . . and a dearth of new single-family housing
coming to the market . . . .
Source: Federal Reserve of St. Louis.
. . . . homeownership rates have fallen back to pre-bubble
levels as well . . . .
Source: Federal Reserve of St. Louis.
. . . . household formation has significant pent up demand . . .
.
Source: Joint Center for Housing Studies, State of the Nation’s Housing: 2013.
. . . . minorities and seniors will drive most all
household demand growth in the coming decade . . . .
Source: Joint Center for Housing Studies, State of the Nation’s Housing: 2013.
. . . . “married couple” households have declined
dramatically over time . . . .
Percent "Other Family" and "Non-Family" Households
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
Source: Census and Marquette University.
. . . . the supply of multifamily starts averaged 360,000
since 1956, a level we are now reaching replacement
equilibrium rates . . . .
Source: Federal Reserve of St. Louis.
Housing market fundamentals take-aways:
•
•
•
•
Prices are at pre-bubble levels;
Market supply and demand are in equilibrium;
Pent up demand exists for new households;
However, new household formation skews toward
rental housing.
Challenges of the First-time
Homebuyer
Employment growth for the first-time
homebuyer’s lags . . . .
Source: St. Louis Federal Reserve
. . . .unemployment rates for high school graduates
remaining high . . . .
Source: St. Louis Federal Reserve
. . . . and the
average college
graduate with
the average
student loan
debt is
straddled with
$366 per
month
(assumes a 6% rate,
10 year term)
Source: Wall Street Journal, June 14, 2014
. . . . many high school and college graduates
living at with their parents. . . .
. . . . and marriage is coming later in life . . . .
Source: U.S. Census.
. . . . which leaves the housing market prospects for
the first-time homebuyer challenged. . . .
Source: WSJ May 24-25, 2014, p. A2.
First-time homebuyer take-aways:
• Employment growth for the 25-34 age cohorts has
been non-existent;
• The high school graduate continues to struggle
with employment and real wage growth;
• College graduates face of growing student loan
payments;
• Leaving the first-time homebuyer market tenuous.
The owner-occupied market has both headwinds/tailwinds:
Headwinds
•
•
•
•
•
•
Owning a home may no longer be the American Dream;
GDP growth and labor force participation rate concerns remain;
Stagnant wealth and income levels for most;
Tighter underwriting – higher FICO scores;
First-time homebuyers remain challenged;
Increasing house prices
Tailwinds
•
•
•
•
Single-family market fundamentals are solid
Markets are at pre-bubble levels
Markets are in equilibrium
Mortgage interest rate remain low
Housing, Household Tenure Choice, and
the Locations We Choose
A Home for Everyone Conference 2014
Presented by: Mark J. Eppli
Interim Keyes Dean and Bell Chair in Real Estate
Marquette University
July 16, 2014