Making Sense of the Housing Recovery

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1 Making Sense of the Housing Recovery John V. Duca * Associate Director of Research and Vice President Federal Reserve Bank of Dallas Adjunct Professor Southern Methodist University * I thank Camden Cornwell for excellent research assistance. The views expressed are solely those of the author and do not necessarily reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System. Any errors are my own.

2 Some Relevant Articles (John V. Duca, Federal Reserve Bank of Dallas and SMU) The Long-Awaited Housing Recovery (2014 Dallas Fed Annual Report Essay) The Subprime Crisis (Federal Reserve History Gateway Essay, Dec. 2013) When Will the U.S. Housing Market Stabilize? (Dallas Fed Economic Letter, August 2011, John Duca, David Luttrell, and Anthony Murphy) Housing Markets and the Financial Crisis of : Lessons for the Future (Journal of Financial Stability 6, John Duca, John Muellbauer and Anthony Murphy, December 2010). House Prices and Credit Constraints: Making Sense of the U.S. Experience (Economic Journal 121, John Duca, John Muellbauer and Anthony Murphy, May 2011). The Rise and Fall of Subprime Mortgages (Dallas Fed Economic Letter, Nov. 2007, Danielle DiMartino and John Duca): Early Signs of Home Overvaluation Emerging (Dallas Fed Southwest Economy, Spring 2004, John Duca):

3 The Housing Boom and Bust Large run-up and decline in house prices that sparked a surge in and over-building of homes This largely stemmed from an easing of credit standards, reflected in a rise in loan-to-value ratios on mortgages for first time buyers Which later declined when subprime losses mounted and which was only partially cushioned by an expansion of FHA lending

4 U.S. house prices boom, bust and rebound Index, 1991:Q1 = CoreLogic House Price Index FHFA House Price Index Boom +100% +67% 0 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Author's calculations using data from Federal Housing Finance Agency and Haver seasonal adjustments of CoreLogic data.

5 U.S. house prices boom, bust and rebound Index, 1991:Q1 = CoreLogic House Price Index FHFA House Price Index Bust -31% -20% 0 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Author's calculations using data from Federal Housing Finance Agency and Haver seasonal adjustments of CoreLogic data.

6 U.S. house prices boom, bust and rebound Index, 1991:Q1 = CoreLogic House Price Index FHFA House Price Index Rebound +26% +18% 0 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Author's calculations using data from Federal Housing Finance Agency and Haver seasonal adjustments of CoreLogic data.

7 The Housing Boom and Bust Large run-up and decline in house prices that sparked a surge in and over-building of homes This largely stemmed from an easing of credit standards, reflected in a rise in loan-to-value ratios on mortgages for first time buyers Which later declined when subprime losses mounted and which was only partially cushioned by an expansion of FHA lending

8 Single-family home construction peaks, plunges, picks up, pauses, picks up again Billions of 2009 dollars Millions of units Real single-family construction (Q4) Single-family building permits 0.75 (Jan.) '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Bureau of Economic Analysis and U.S. Census Bureau, with Haver seasonal adjustments. 0.25

9 Single-family home construction peaks, plunges, picks up, pauses, picks up again Billions of 2009 dollars Millions of units Real single-family construction (Q4) Single-family building permits 0.75 (Jan.) '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Bureau of Economic Analysis and U.S. Census Bureau, with Haver seasonal adjustments. 0.25

10 Single-family home construction peaks, plunges, picks up, pauses, picks up again Billions of 2009 dollars Millions of units Real single-family construction (Q4) Single-family building permits 0.75 (Jan.) '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Bureau of Economic Analysis and U.S. Census Bureau, with Haver seasonal adjustments. 0.25

11 Single-family home construction peaks, plunges, picks up, pauses, picks up again Billions of 2009 dollars Millions of units Real single-family construction Harsh winter (Q4) Single-family building permits 0.75 (Jan.) '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Bureau of Economic Analysis and U.S. Census Bureau, with Haver seasonal adjustments. 0.25

12 The Housing Boom and Bust Large run-up and decline in house prices that sparked a surge in and over-building of homes This largely stemmed from an easing of credit standards, reflected in a rise in loan-to-value ratios on mortgages for first time buyers Which later declined when subprime losses mounted and which was only partially cushioned by an expansion of FHA lending

13 Median LTV Ratios for 1st-time Homebuyers Using Private Mortgages Misses 100% p Cushioning Effect of 2007 Change to Gov't Insured FHA/VA Mortgages % of home purchase price 95% 90% 85% 80% median LTV ratio 1st-time home-buyers, non-government loans 75% 70% Sources: LTV 1st-time home buyers from American Housing Survey and authors' calculations.

14 Median LTV Ratios for 1st-time Homebuyers Using Private Mortgages Misses % of home purchase price 100% 95% p Cushioning Effect of 2007 Change to Gov't Insured FHA/VA Mortgages median LTV ratio 1st-time home-buyers, all mortgages (including FHA) 90% 85% 80% median LTV ratio 1st-time home-buyers, non-government loans loan size limts raised on FHA/VA mortgages to cushion tighter credit standards on private mortgages 75% 70% Sources: LTV 1st-time home buyers from American Housing Survey and authors' calculations.

15 100% 95% Median LTV Ratios for 1st-time Homebuyers Reflect Mortgage Innovations, % of home purchase price p Regulations, and Federal Agency Interventions median LTV ratio 1st-time home-buyers, all mortgages (including FHA) 90% 85% 80% loan size limts raised on FHA/VA mortgages to cushion tighter credit standards on private mortgages 75% 70% Sources: LTV 1st-time home buyers from American Housing Survey and authors' calculations.

16 100% 95% Median LTV Ratios for 1st-time Homebuyers Reflect Mortgage Innovations, % of home purchase price p Regulations, and Federal Agency Interventions median LTV ratio 1st-time home-buyers, all mortgages (including FHA) 90% 85% 80% Saving/Loan bailout and Basel 1 GSE affordable housing goals raised Innovations and regulations foster subprime boom loan size limts raised on FHA/VA mortgages to cushion tighter credit standards on private mortgages 75% 70% Sources: LTV 1st-time home buyers from American Housing Survey and authors' calculations.

17 Outline of Comments on Current and Future Housing I. Is the national housing recovery for real? Affordability, price, inventory patterns imply yes. But credit standards and income not fully back. II. What accounts for regional patterns? Differences in housing supply and labor markets. III. What s next? The pace of recovery will depend not only on future mortgage interest rates and labor market conditions, but also on how regulation, mortgage credit standards, and living arrangements evolve. Homeownership unlikely to return to subprime boom highs; in long-run may see something like early 1990s homeownership and renting patterns.

18 I. Is the national housing recovery for real? Prices and construction in recovery from the housing/subprime bust, winter pause a hiccup Inventory conditions signal recovery House prices in line with rents, past appreciation, interest rates, and income Mortgage foreclosure rates returning toward normal

19 Lower inventories consistent with house price appreciation Months of supply** Inventory low Inventory high 9 Supply of single-family homes '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 *Year-over-year rate of change, lagged one quarter **Three-quarter moving average NOTE: The inflation-adjuste d house price appreciation series is lagged by two quarters to more clearly align the two series. SOURCES: Federal Housing Finance Agency; Freddie Mac; Bureau of Economic Analysis; National Association of Realtors; and author's calculations. 12

20 Lower inventories consistent with house House price change* (percent) price appreciation Real FHFA house prices Months of supply** Inventory low Inventory high Supply of single-family homes '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 *Year-over-year rate of change, lagged one quarter **Three-quarter moving average NOTE: The inflation-adjuste d house price appreciation series is lagged by two quarters to more clearly align the two series. SOURCES: Federal Housing Finance Agency; Freddie Mac; Bureau of Economic Analysis; National Association of Realtors; and author's calculations. 12

21 Index, 1997:Q4 = House price-to-rent ratio in line with mortgage interest rates House price-to-rent ratio '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 SOURCES: Federal Housing Finance Agency; Federal Reserve Board; Bureau of Labor Statistics; and author's calculations.

22 Affordability returns to normal (Share of homes sold that are affordable to median-income family) Percent U.S. Housing Opportunity Index '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 NOTE: The Housing Opportunity Index assumes that the family spends 28 percent of its gross income on a 30-year, fixed-rate mortgage with a 10 percent down payment. SOURCES: National Association of Home Builders and Wells Fargo.

23 The Rate of Newly Initiated Foreclosures Resumes Falling Percent, SA 2.5 Percent, SA Share of Subprime Mortgages: Foreclosures Started Share of All Mortgages: Foreclosures Started Share of Conventional (Prime) Mortgages: Foreclosures Started 2014 Q3 '98 '00 '02 '04 '06 '08 '10 '12 ' Source: Mortgage Bankers Association.

24 II. What accounts for regional patterns? Where housing supply is more sensitive to house prices bigger swings in construction than in prices: Northeast vs. South Large metro areas Why is the housing recovery stronger in Texas? Partly reflects an energy boom Inventories tight Land more affordable and a stronger job market Single-family building shifts more in land-rich South House prices more volatile

25 Thousands* 900 Single-family permits swing more in land-plentiful South than in Northeast South Northeast '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 *Seasonally adjusted, annualized rate SOURCE: Census Bureau, with Haver seasonal adjustments.

26 Single-family home prices more volatile in the Northeast than in the South Median sales price (thousands of dollars) 300 Northeast South '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCE: National Association of Realtors, with Haver seasonal adjustments.

27 House price-to-rent ratios rise and fall more in major metros where low supply sensitivity cushions demand swings less Nominal price-to-rent ratio (1997:Q4 = 100) Metros with low sensitivity of supply Metros with medium to high sensitivity of supply 60 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Federal Housing Finance Agency, Bureau of Labor Statistics, "The Geographic Determinants of Housing Supply," by Albert Saiz, Quarterly Journal of Economics, vol. 125, no. 3, 2010, pp ; author's calculation.

28 Outside the Washington DC Area, Unemployment Lower in Energy, Farm, and Lower Regulation/Tax States Unemp. rate < 4.9% 5.6% U 6.9% 5.0% U 5.5% 7.0% U 7.2%

29 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 U.S. 63% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% New York 42% San Fran. 10% Atlanta 75% Dallas 65% Houston 66% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

30 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 2006:q4 U.S. 63% 42% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% 2% New York 42% 5% San Fran. 10% 8% Atlanta 75% 68% Dallas 65% 62% Houston 66% 56% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

31 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 2006:q4 2014:q2 Home Price Change 06:q4-14:q2 Jun Unemployment Rate (SA) U.S. 63% 42% 63% -8% 6.1% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% 2% 18% -17% 7.4% New York 42% 5% 23% -15% 6.6% San Fran. 10% 8% 11% +27% 5.2% Atlanta 75% 68% 71% -5% 7.6% Dallas 65% 62% 56% +21% 5.4% Houston 66% 56% 56% +38% 5.4% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

32 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 2006:q4 2014:q2 Home Price Change 06:q4-14:q2 Jun Unemployment Rate (SA) U.S. 63% 42% 63% -8% 6.1% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% 2% 18% -17% 7.4% New York 42% 5% 23% -15% 6.6% San Fran. 10% 8% 11% +27% 5.2% Atlanta 75% 68% 71% -5% 7.6% Dallas 65% 62% 56% +21% 5.4% Houston 66% 56% 56% +38% 5.4% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

33 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 2006:q4 2014:q2 Home Price Change 06:q4-14:q2 Jun Unemployment Rate (SA) U.S. 63% 42% 63% -8% 6.1% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% 2% 18% -17% 7.4% New York 42% 5% 23% -15% 6.6% San Fran. 10% 8% 11% +27% 5.2% Atlanta 75% 68% 71% -5% 7.6% Dallas 65% 62% 56% +21% 5.4% Houston 66% 56% 56% +38% 5.4% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

34 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 2006:q4 2014:q2 Home Price Change 06:q4-14:q2 Jun Unemployment Rate (SA) U.S. 63% 42% 63% -8% 6.1% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% 2% 18% -17% 7.4% New York 42% 5% 23% -15% 6.6% San Fran. 10% 8% 11% +27% 5.2% Atlanta 75% 68% 71% -5% 7.6% Dallas 65% 62% 56% +21% 5.4% Houston 66% 56% 56% +38% 5.4% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

35 Metro house price changes since 2006 reflect affordability and unemployment 2000:q1 2006:q4 2014:q2 Home Price Change 06:q4-14:q2 Jun Unemployment Rate (SA) U.S. 63% 42% 63% -8% 6.1% Pacific and Atlantic Coastal metros Non- Atlantic Southern Metros LA 40% 2% 18% -17% 7.4% New York 42% 5% 23% -15% 6.6% San Fran. 10% 8% 11% +27% 5.2% Atlanta 75% 68% 71% -5% 7.6% Dallas 65% 62% 56% +21% 5.4% Houston 66% 56% 56% +38% 5.4% NOTE: The HOI is the percent of homes sold that are affordable to families earning the median income of that area, using a 30-year prime mortgage with 10 percent down, and the resulting mortgage payments are no higher than 28% of median income. SOURCES: National Association of Home Builders and Wells Fargo Housing Opportunity Index (HOI); and FHFA.

36 III. What s next? Unusual financial factors Banks and regulation limits loans for land development amid reports of lot shortages: Limited new construction, amid rising prices Some areas (TX) report construction worker shortages Homebuyers face tougher credit standards: Some justifiable, help ensure credit worthiness Some unnecessary from cumbersome regulation DFA rule-writing has allayed some uncertainty Uncertainty from possible reform of Fannie & Freddie Harder to borrow home equity to fund college for students

37 III. What s next? Unusual living and labor market patterns Weak labor market recovery through 2013 delays household formation among young more boomerang kids, later marriage, and lower birth rate limits numbers of new renters and homeowners Weak job and income growth through 2013, high student debt, and tighter credit standards lower homeownership rates especially for young. Shift to renting and to multi-family construction. Signs of a national pick-up in hiring and economic growth are an upside risk could help household formation recover and many qualify for mortgages

38 Household formation among young recovering some; but share of adults living with parents up from 1970s Percent heading own household 52 Age household formation rate (left axis) 50 Percent of adults living with parents Overall share of adults living with parents (right axis) SOURCES: Census, author's calculation using the IPUM-CPS (Integrated Public Use Microdata Series-Current Population Survey) data set, and When Will the Kids Ever Move Out? by John V. Duca, December 2014, manuscript. 4

39 The share of adults living with their parents trends with poverty among non-elderly adults Percent of adults living with parents 16 Percent of adults (18-64) living in poverty Age poverty rate (right axis) Overall share of adults living with parents (left axis) SOURCES: Census, author's calculation using the IPUM-CPS (Integrated Public Use Microdata Series-Current Population Survey) data set, and When Will the Kids Ever Move Out? by John V. Duca, December 2014, manuscript.

40 III. What s next? Unusual living and labor market patterns Weak labor market recovery through 2013 delays household formation among young more boomerang kids, later marriage, and lower birth rate limits numbers of new renters and homeowners Weak job and income growth through 2013, high student debt, and tighter credit standards lower homeownership rates especially for young. Shift to renting and to multi-family construction. Signs of a national pick-up in hiring and economic growth are an upside risk could help household formation recover and many qualify for mortgages

41 Rise and fall of homeownership rates very pronounced among younger families Percent of households All ages (left axis) SOURCES: Census Bureau and author's calculations of adjustments for changes in decennial census-related survey procedures to make data more consistent over time.

42 Rise and fall of homeownership rates very pronounced among younger families Percent of households All ages (left axis) Ages (left axis) SOURCES: Census Bureau and author's calculations of adjustments for changes in decennial census-related survey procedures to make data more consistent over time. 32

43 Rise and fall of homeownership rates very pronounced among younger families Percent of households 72 Percent of households Under age 35 (right axis) All ages (left axis) Ages (left axis) SOURCES: Census Bureau and author's calculations of adjustments for changes in decennial census-related survey procedures to make data more consistent over time. 32

44 Shift to renting: construction recovery soft for singlefamily, stronger for multi-family, incomplete overall Thousands of Units, SAAR Single-family permits '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 SOURCES: National Bureau of Economic Research and the Census Bureau.

45 Shift to renting: construction recovery soft for singlefamily, stronger for multi-family, incomplete overall Thousands of Units, SAAR Single-family permits Multi-family permits 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 SOURCES: National Bureau of Economic Research and the Census Bureau.

46 Shift to renting: construction recovery soft for singlefamily, stronger for multi-family, incomplete overall Thousands of Units, SAAR Total permits Single-family permits Multi-family permits 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 SOURCES: National Bureau of Economic Research and the Census Bureau.

47 Total residential construction peaks, plunges and picks up Millions of units Billions of 2009 dollars Real residential construction Q Residential building permits Feb '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Bureau of Economic Analysis and U.S. Census Bureau, with Haver seasonal adjustments.

48 III. What s next? Unusual living and labor patterns Weak labor recovery through 2013 delays household formation among young more boomerang kids, later marriage, and lower birth rate Limits numbers of new renters and homeowners Weak job and income growth through 2013, high student debt, and tighter credit standards lower homeownership rates especially for young. Shift to renting and to multi-family construction. Further economic recovery after 2013 could help household formation recover, and enable more young to rent or more qualify for mortgages.

49 III. What s next? Some Other Aspects of the Housing Recovery Fall in oil prices will shift economic growth toward non-energy states, helping housing in the Midwest, Pacific, Northeast, South Atlantic, and mid-south. Fall in homeownership, especially for the young and early middle age groups may be with us for a while. Income critical. Poor income growth a factor hurting home-buying and household formation. Income growth starting to pick up mainly from hours and employment rising than from much nominal wage growth. Further housing recovery: mainly from better income growth. Housing turnover could be low & home improvement activity high: (+) Lock-in of low fixed mortgage rates may encourage fix-ups than trade-ups (+) Housing stock old, little built during the bust and weak housing recovery (-) Cash-out refinancings more costly, so funding from withdrawing home equity will mainly come from home equity lines of credit (HELOCs)

50 Conclusion Better income growth will likely foster a further recovery in housing after the effects of a harsh winter fade. Any uncertainty is more about the pace than the sustainability of the housing recovery, centering on: the impact of evolving credit standards and regulations the path of mortgage rates, possible Fannie/Freddie reform evolving living patterns of young adults how labor markets recover in terms of jobs and income Recent job growth and the broadening of the economic recovery is encouraging for both housing and the overall economy.

51 Back-up slides

52 U.S. house prices boom, bust and rebound Index, 1991:Q1 = CoreLogic House Price Index FHFA House Price Index Boom +100% +67% Bust -31% -20% Rebound +20% +15% 0 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 SOURCES: Author's calculations using data from Federal Housing Finance Agency and Haver seasonal adjustments of CoreLogic data.

53 Total residential construction peaks, plunges and picks up Millions of units Billions of 2009 dollars Real residential construction Q Residential building permits Feb '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Bureau of Economic Analysis and U.S. Census Bureau, with Haver seasonal adjustments.

54 Index, 1997:Q4 = House price-to-rent ratio in line with mortgage interest rates Percent House price-to-rent ratio After-tax mortgage costs house price appreciation '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 SOURCES: Federal Housing Finance Agency; Federal Reserve Board; Bureau of Labor Statistics; and author's calculations. 0

55 Supply conditions affect house price response to higher demand Price S Price P 1 1 S P 0 0 P 1 P Q 0 Q 1 D 0 D 1 Quantity Q 0 Q 1 D 0 D 1 Quantity Low Supply Sensitive Areas (Northeast, Pacific) Medium- to High Supply Sensitive Areas (South ex. Florida)

56 House price-to-rent ratios rise and fall more in major metros where low supply sensitivity cushions demand swings less Nominal price-to-rent ratio (1997:Q4 = 100) Metros with low sensitivity of supply Metros with medium to high sensitivity of supply 60 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Federal Housing Finance Agency, Bureau of Labor Statistics, "The Geographic Determinants of Housing Supply," by Albert Saiz, Quarterly Jounral of Economics, vol. 125, no. 3, 2010, pp ; author's calculation.

57 Outside of energy booms and busts, Dallas price-to-rent ratios near those of metros with medium to high sensitivity of supply Nominal price-to-rent ratio (1997:Q4 = 100) Houston Dallas- Fort Worth Metros with medium to high sensitivity of supply '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Federal Housing Finance Agency, Bureau of Labor Statistics, "The Geographic Determinants of Housing Supply," by Albert Saiz, Quarterly Journal of Economics, vol. 125, no. 3, 2010, pp ; author's calculation.

58 160 Outside of energy booms and busts, Dallas price-to-rent ratios near those of metros with medium to high sensitivity of supply Nominal price-to-rent ratio (1997:Q4 = 100) Oil boom Oil bust Mini energy boom Houston Dallas- Fort Worth Metros with medium to high sensitivity of supply '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 SOURCES: Federal Housing Finance Agency, Bureau of Labor Statistics, "The Geographic Determinants of Housing Supply," by Albert Saiz, Quarterly Journal of Economics, vol. 125, no. 3, 2010, pp ; author's calculation.

59 90 U.S. Housing Affordability Near Normal, Dallas seems 'Pricey' (Share of Homes Sold That Are Affordable to Median-Income Family) Percent 80 Houston San Antonio DFW U.S El Paso '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 NOTE: The HOI assumes that the family spends 28 percent of its gross income on a 30-year, fixed-rate mortgage with a 10 percent down payment. SOURCES: National Association of Home Builders and Wells Fargo.

60 Percent 90 Housing affordability normal for U.S., San Antonio, El Paso (Share of Homes Sold That Are Affordable to Median-Income Family) 80 San Antonio U.S El Paso '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 NOTE: The HOI assumes that the family spends 28 percent of its gross income on a 30-year, fixed-rate mortgage with a 10 percent down payment. SOURCES: National Association of Home Builders and Wells Fargo.

61 Percent 90 U.S. Housing Affordability Normal, Dallas/Houston 'Pricey? (Share of Homes Sold That Are Affordable to Median-Income Family) 80 Houston DFW U.S '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 NOTE: The HOI assumes that the family spends 28 percent of its gross income on a 30-year, fixed-rate mortgage with a 10 percent down payment. SOURCES: National Association of Home Builders and Wells Fargo.

62 III. What s next? Unusual factors that will affect the recovery s pace Loan supply for home builder s and home-buyers affected by new regulations, restrains overall level of and affects the composition of home construction Fed tapering, eventual normalization of interest rates The recovery of low household formation and homeownership rates among young, possible longlasting upshift in adults living with their parents Labor market recovery, not just jobs also income

63 Overall household formation sags during Households/population (percent) 52 Age household formation rate the Great Recession 50 Overall household formation rate Upward trend from the aging of the population and evolving family structure SOURCE: Author's calculations using the IPUM-CPS (Integrated Public Use Microdata Series-Current Population Survey) data set.

64 Percent 30 Unemployment rates more elevated among the young Ages Ages Ages SOURCE: Bureau of Labor Statistics.

65 Rise and fall of homeownership rates very Percent of households 72 pronounced among younger families Percent of households Under age 35 (right axis) All ages (left axis) Change homeownership rates Rise: Fall: Ages all < Ages (left axis) SOURCES: Census Bureau and author's calculations of adjustments for changes in decennial census-related survey procedures to make data more consistent over time

66 Household formation among young recovering; share of adults living with parents up from 1970s Percent heading own household Age household formation rate (left axis) Percent of adults living with parents Overall share of adults living with parents (right axis) SOURCE: Author's calculation using the IPUM-CPS (Integrated Public Use Microdata Series-Current Population Survey) data set.

67 The share of adults living with their parents trends with poverty among non-elderly adults Percent of adults living with parents 16 Percent of adults (18-64) living in poverty Age poverty rate (right axis) Overall share of adults living with parents (left axis) SOURCES: Census and author's calculation using the IPUM-CPS (Integrated Public Use Microdata Series-Current Population Survey) data set.

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