The on-going housing bubble

I checked the value of my home on Zillow today.

It's nuts.

After 13 years the estimated price is up 6.5% per annum.

On the other hand, the house I previously owned and sold is up only 0.8% per annum over the same period.

Two entirely different houses, two entirely different locations, two completely different histories. What seems like a bubble living in my current house wouldn't seem like one living in my old one.

The best way I've found to think about this is to ask, How much of a house will my income buy? For bubble purposes nationally, even though housing is a regional and local matter, use median household income and median sales price.

Here's the chart of that data as currently available.

In 2020 the Median Sales Price of Houses Sold for the United States (MSPUS) averaged a new high of almost $337k. We don't yet have the median household income figure for 2020, but it's likely to be bad news, skewing the graph lower again as less income buys a smaller share of increasingly expensive housing.

As you can plainly see, the trend for the percentage of a house purchased by an income has been all downhill since the end of Reagan Bull in 2000. The percentage really fell a lot during the housing bubble which peaked in 2005-06, helping precipitate GFC1. Incomes fell a lot after the Great Financial Crisis because people lost their jobs by the millions and never got them back and so less income purchased less house. Housing prices bottomed in 2012 and then rebounded slowly. Incomes did not, however, and what you made just kept buying less in the low range of 19%. 

That all sucked. Obama really sucked. Sucked historically bad. Record-setting bad. 

You'll notice things really improved in 2019, however. That's because median household income shot up $5k to over $68k (Trump tax cuts), and the median sales price of a house actually fell $5k to $320k. Your higher income bought more of a slightly cheaper house, not as much as the good old days, but more.

Unfortunately in 2020 median sales price shot up almost $17k while millions upon millions lost their jobs. The feds enacted foreclosure forbearance so that 2.3 million homes whose owners lost their jobs never came onto the market. But desperate people who wanted out of cities snarfed up inventory. Demand far exceeded supply, so prices went up. 

But even at 21.5% in 2019 housing was nowhere near affordable like it was from 1987-2001. It was a nice, hopeful moment, while it lasted.

I'm guessing it's going to be quite a while, though, before we ever see even that again. 

The face of the declining middle class in 2016 was concealed as 15 million more lived in doubled-up households than in 2005

Zillow reported (here) in December that working age adults in 2016 were living in doubled-up households at a rate of 30% compared with 21% in 2005.

That works out to roughly 32 million in 2005 at the 21% rate vs. 50 million in 2016 at the 30% rate, using the Working Age Population data from FRED.

Had the rate remained 21% in 2016, just 35 million would be living doubled-up instead of 50 million. 

That's 15 million more adults who can't afford to buy, and can't even afford to rent, thanks to the feckless performances of George W. Bush and Barack H. Obama.

h/t Jeffrey Snider, Alhambra Investments

A healthy housing market would have 1-2% underwater, but we still have 15% with negative equity

Mostly in the lowest third of valuation.

From the Bloomberg story, here:

"A decade after U.S. home sales peaked, 15.4 percent of owners in the first quarter owed more on their mortgages than their properties were worth, according to a report Friday by Zillow Inc. While that’s down from a high of 31.4 percent in 2012, it’s still alarmingly above the 1 or 2 percent that marks a healthy market, said [Stan] Humphries, the chief economist at the Seattle-based real-estate data provider. Worse yet: The pace of healing is losing steam. ... While 25.5 percent of homes valued in the lowest third are underwater, just 14.1 percent of those in the middle have negative equity. For the top group, the figure is even lower -- 8.3 percent."

Underwater mortgages still number 8 million, down from 25.5 million in 2011

From the story here:

"Nearly eight million borrowers, or 15.4 percent of homeowners with a mortgage, still owe more than their homes are worth, according to Zillow. While the numbers continue to improve, about half of those borrowers owe the bank at least 20 percent more than their homes are worth."

Zillow says 10 million mortgages remain underwater concentrated among homes worth less than $100,000

CNBC's Diana Olick reports here:

Nearly 10 million borrowers still owe more on mortgages than their homes are currently worth, according to Zillow. That has kept them stuck in place. ... affordable homes are still drowning disproportionately. They are three times more likely to be underwater than expensive homes, according to Zillow. Thirty percent of mortgaged homes in the bottom price tier ($98,400 and below) are in negative equity, compared with 18 percent in middle tier ($90,400 to $306,700) and 10.7 percent in top tier ($306,700-plus).

Zillow Recognizes 2012 Housing Value Increase Is Double The Norm

The final three months of 2012 marked five consecutive quarters of U.S. home value appreciation, and the near 6% annual jump is roughly double the historical average that has home values climbing about 3% a year, Zillow said.

“Good news for homeowners after years of poor performance,” Stan Humphries, Zillow’s chief economist, said in a statement. But Humphries cautioned consumers against expecting 2012-like gains in the future, saying we expect this recovery to continue into 2013, but at a more sustainable pace.”

The rest is here.

Without a driver for jobs, I see no reason for housing to appreciate at even 3% per year. In fact, prices today are within that percentage of the historical top of their range prior to the bubble. In other words, prices are still too high, historically, but Zillow isn't going to tell you that, at least not that way.

Buyer beware, imho.

Decline in Housing Values Slightly Worse Than Great Depression

According to CNBC.com and Zillow, here:

Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported.

November marked the 53rd consecutive month (4 ½ years) that home values have fallen.


Sounds like an historic opportunity to me.