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发帖数: 1879 | 1 摘要:
- Median price to household income ratio is history low at 153%
- history low mortgage interest
- Median mortgage payment is only 78% of median asking rent, and it used to
be 105% before 2005
- new house price is only 25% higher than construction cost, and it is twice
as much in 2005
全文:
With the debt crisis in Europe still unresolved and economic growth in the U
.S. sluggish, the capital markets continue to exhibit elevated volatility.
However, this does not mean that no investment opportunities exist. Although
the U.S. housing market remains extremely depressed, we believe that given
current valuations and demographic dynamics, now may be the time to consider
an investment in housing.
Few financial manias in history have had as devastating an economic impact
as the American real estate bubble of the 2000s. From soaring boom to dismal
and continuing bust, it has shipwrecked the financial plans of millions of
American families, led to an absolute collapse in the construction industry
and, through the magic of modern financial leverage, led to the biggest
global recession since World War II. A few years ago, most Americans
believed that there was no better long-term investment than owning your own
home. Today, many regard home ownership as a financial ball and chain.
But while the change in attitudes has been dramatic, so has the change in
the numbers themselves. Years of falling prices and falling mortgage rates
have made home buying more affordable than it has been in decades. Moreover,
home prices look downright cheap, not only from the perspective of mortgage
rates and income, but also relative to the cost of renting or the cost of
constructing a new home.
Meanwhile, continued population growth, combined with lender and borrower
caution, has increased pent-up demand. While the inventory of homes both on
the market and in foreclosure remains high, minimal home building over the
past three years is gradually eating into this stockpile, a process that
could quickly accelerate with any pickup in demand.
Home prices play a crucial role in determining household wealth and shaping
consumer confidence. In addition, any revival in home building could provide
a much-needed boost to overall economic growth and employment. However,
beyond the implications for the macroeconomy and financial markets, the
numbers on housing have an important message for American families today,
and particularly younger families setting out on life’s great adventure:
Five years ago, at the peak of the home-buying euphoria, it was emphatically
a time to rent. Today, when home ownership is depreciated more than ever
before, the numbers tell us it is a time to buy.
Collapse and consequences
The sad saga of the U.S. housing crash is now so well known that it seems
almost cruel to rehash the details. Many observers at the time realized that
too many houses were being built, home prices were rising too quickly and
lending standards were being dangerously compromised in fueling the bubble.
While there is much more to the story, the bottom line is that by January
2006, U.S. housing starts reached a peak of just under 2.3 million units
annualized, about 50% higher than the average level of starts over the past
50 years, while the price of the average, existing single-family home was up
47% in just five years. Something had to give, and it did — in a big way.
Since then, the collapse in housing has been of historic proportions,
amplified by the financial crisis of 2008. Some numbers can help put this in
perspective:
• In almost 50 years, from January 1959 to September 2008, the lowest
annualized rate of housing starts recorded for any month was 798,000, and
the average rate was more than 1.5 million units. Since January 2009, the
highest rate recorded for any month has been 687,000, and the average rate
has been just 575,000.
• From their peak in late 2005, nationwide median existing single-
family home prices have fallen by 29% in nominal terms and by 37% relative
to inflation.
• Since the first quarter of 2006, the value of home equity has fallen
from $13.5 trillion to $6.2 trillion, a 54% decline.
All of this has had a profound impact on the economic environment,
investment environment and even the psychological outlook of Americans.
• Since the start of the recession in December 2007, construction
employment nationwide has fallen by 1.9 million jobs, or 30% of the 6.6
million jobs lost. This from a sector that even at its peak only ever
accounted for 5.7% of U.S. jobs. However, even this understates the impact
of the housing slump on employment, as it ignores the ancillary industries
that have been impacted by the decline in housing, along with all the
employment effects caused by the impact of a collapse in housing market
wealth, confidence and the stock market.
• Since the middle of 2006, home building has fallen from 5.9% of
nominal GDP to just 2.2%
• Falling home prices have also had a profound impact on consumer
confidence. Statistical work over the last decade suggests that a 10% change
in year-over year average existing home prices tends to move the consumer
sentiment index by approximately 6.4 index points in the same direction,
even after accounting for feed-though effects of housing on the stock market
and employment. For reference, the consumer sentiment index was at a level
of 57.5 in early October 2011, almost 30 points lower than its average level
of the last 40 years.
• Perhaps most important, declining home prices have undermined the
confidence of both lenders and borrowers, impeding any healthy recovery in
housing and restraining a rebound elsewhere within the economy.
Measures of value
While no one should understate the pain and destruction caused by the
bursting of the housing bubble, it has had one undeniable effect: Across a
wide range of measures, it has left the United States with its cheapest
housing market in decades.
One of the simplest measures is just to look at home prices relative to
average household income. The chart to the left shows the relationship
between average, per-household personal income (1) and home prices over the
years. Since 1966, the median price of an existing single family home in the
U.S. has varied between 150% and 251% of personal income per household.
However, roughly three-quarters of the time it has been in a relatively
narrow band between 185% and 230%. In September 2011, the ratio was just 153
%, implying that to get back to an average price to income ratio, home
prices would have to rise by about 27%.
However, price is only part of the story. Economic malaise, bond market
complacency and the active intervention of the Federal Reserve have reduced
mortgage rates to their lowest level in modern history. During the week of
October 7, Freddie Mac reported that mortgage rates had fallen to an average
annual level of 3.94%. Assuming the use of a fixed rate mortgage with 20%
down, this would make the median mortgage payment on a single family
existing home just 6.9% of per household personal income, compared with an
average of 14.4% since 1966. This is not to imply that home prices would
have to double to get to “normal” levels — any revival in housing will
likely push mortgage rates higher along with home prices. However, it does
emphasize the potential long-term financial gain for those who buy much-
cheaper-than average housing while also locking in much-cheaper-than-average
long-term financing.
A third way to look at home valuations is to look at the cost of renting
versus the cost of owning. Since the late 1980s, as part of the Current
Population Survey (2) , the Census Bureau has asked the owners of vacant
properties whether they are trying to rent or sell the property and,
depending on that answer, what they are asking for rent or asking as a sale
price for the property. Assuming a 20% down payment and prevailing 30- year
mortgage rates, this allows us to calculate the monthly mortgage payment
necessary to buy the median vacant home and compare it to the cost of
renting the median house or apartment. As shown in the bottom chart to the
right, from the start of 1988 to the start of 2005, these two numbers
tracked each other very closely, with the implied median mortgage payment
just 5% higher than median rent. However, in 2005 the housing market began
to soar and by mid 2007, the implied median mortgage payment was about 50%
higher than the asking rent. Then housing began its long swoon, and by the
third quarter of this year, we estimate that the implied median mortgage
payment had fallen to just 78% of the median asking rent. In other words, at
current mortgage rates, home prices would have to rise by 35% just to get
back to their average relationship to rents.
A fourth way to look at home pricing is to look at home pricing relative to
the cost of construction — a sort of price-to-book ratio for the housing
market. The price of any home can be divided into two separate components —
what it would cost to rebuild the house itself from scratch, and the
implied value of the land on which it is located. Ongoing work conducted by
the Lincoln Institute of Land Policy and the University of Wisconsin
decomposes the value of U.S. housing into these two pieces (3) . On average,
since 1975, U.S. residential real estate has been worth about 55% more than
the cost of rebuilding it — that is to say, land has represented about a
third of the total value of residential property. In the housing boom, home
prices rose much faster than construction costs so that by the middle of
2005, the value of houses was implicitly twice what it cost to build them,
as is shown in the chart below.
Of course, this was tremendously encouraging to builders, since, if they
could get their hands on a piece of vacant land at any reasonable price and
put up a house, they could walk away with a healthy profit.
Since then, like practically every other number in the housing market, the
implicit value of land has plummeted, even as the costs of labor, cement,
lumber, and so on have risen. Consequently, by the third quarter of 2011,
the estimated value of the U.S. housing stock was only 26% higher than the
cost of constructing it (4) . In some metropolitan areas, existing home
prices have fallen so much relative to construction costs that building,
rather than buying, would only seem logical if the land could be bought for
close to nothing.
While this is a big part of the reason why home building has ground to a
halt in many metropolitan areas, it should be somewhat comforting for
current home buyers and home owners. Given that builders can’t actually buy
land for a song, in many cities, home prices will have to rise before there
is any significant increase in supply.
Supply, demand and inventories
On a variety of measures, U.S. home prices look very low. This, in itself,
does not guarantee that they are about to turn. However, trends in supply,
demand and inventories strongly point to rising home prices in the years
ahead.
First, on the supply side, the great housing bust of the late 2000s has
reduced home building to a shadow of its former self. Perhaps the most
dramatic statistic is illustrated in the chart to the right, which shows
total U.S. housing starts at a seasonally adjusted annual rate from 1959 to
today. Prior to 2008, there had not been a single month in almost 50 years
when housing starts had fallen below 798,000. Since the start of 2009, there
has not been a single month where starts have exceeded 687,000.
This extraordinarily low rate of construction looks even more dramatic when
normal housing depreciation is considered. Over the past decade, the total
stock of housing in the United States has risen by 13.5 million units.
However, we know that 15.4 million homes have been completed, so a net 1.9
million units, or 190,000 per year, have been destroyed by fire, natural
disasters, and so on. Given this, the current construction rate of roughly
575,000 units per year implies an annual increase in the housing stock of
just 385,000 units.
On the demand side, normal demographic trends should still be building pent-
up demand. In the last decade from 2000 to 2009, the U.S. population grew by
an average of 2.8 million people per year, with natural population growth
contributing approximately 1.7 million people and immigration adding about
one million. In addition, over the same period, an average of 2.2 million
couples got married each year (5). All of these numbers have fallen somewhat
in the recession of 2008-2009 and its aftermath, as couples have postponed
marriage, families have postponed having children, and immigration has been
discouraged by the lack of jobs. However, even if births, immigration and
marriages have all been depressed by the slow economy, they all likely still
imply a much stronger pace of home building than currently exists.
The top chart to the left shows the relationship between annual population
growth and housing starts over the past 50 years. While home-building
numbers are much more volatile than demographic ones, on average over this
period, the U.S. has seen 600 homes started for every 1,000 person increase
in the population, or a ratio of 0.6 homes per person. Given estimated
population growth of 2.46 million people in the 12 months ending in August
2011, this relationship today would suggest total housing starts of 1.4
million units compared to the 572,000 starts that actually occurred (6) .
Moreover, it is also worth noting that at least when it comes to marriages
and births, decisions to postpone may also be generating a pent-up demand,
which will be expressed as the economy gradually improves.
Given these statistics on supply and demand, it seems almost inevitable that
the inventory of unsold homes must be falling. It is — but it still has a
long way to go.
The bottom chart to the left shows the total number of new and existing
homes for sale in the United States from 1996 to today. From the mid 1990s
to the mid 2000s the number was fairly steady at about 2.5 million units.
However, as the housing bubble grew, so did the pace of home building, which
naturally outstripped the demographic growth in demand; by the summer of
2007, the total number of homes on the market peaked at just under 5 million
units.
Since then, inventories have been on a painfully slow drift downward as a
drop in demand offset much of the impact of the collapse in home building.
However, by August of this year, combined new and existing homes listed for
sale had fallen to 3.6 million units, having completed roughly 70% of the
journey back to normal.
Many have argued correctly that even this excessive level of inventories
understates the problem, as there are millions of homes today in foreclosure
that are not yet listed as being for sale. Data from the Mortgage Bankers
Association can be used to estimate the number of homes in foreclosure,
which today stands at roughly 2.2 million units (7) . It is estimated that
approximately a third of these are in fact listed for sale, so adding
unlisted foreclosures to the number of homes actually listed for sale boosts
the inventory of homes for sale, as well as diminishes the progress made in
cutting into this during the past four years.
Some further argue that the problem of foreclosures will only get worse, as
there is a backlog of pending foreclosures that is being suppressed by
litigation and legislation aimed at preventing foreclosures. However, while
such a backlog may well exist, it should be noted that mortgages issued
since the bursting of the housing bubble are much less problematic, and that
the percentage of mortgages 90 days+ delinquent (a reliable precursor to
foreclosure) is actually falling.
Housing market attitudes
Given all of this, why have home prices not already begun to recover?
Part of the problem is simply one of attitudes and expectations. In a recent
poll (8) , just 13% of Americans expected the price of their home to go up
in the next year, and just 36% thought it would go up over then next five.
Unfortunately, this poll wasn’t conducted prior to 2009. However, a similar
survey in 2006 showed that fully 81% expected the value of their home to
increase in the future (9) .
The attitude of lenders is also a barrier. While the wild-west lending
standards of the mid 2000s undoubtedly fueled the housing bubble, in its
aftermath, banks have become very cautious. This can be seen in the chart on
the bottom left, which looks at the loan to price ratio on conventional,
single-family mortgages since 1990. This ratio has fallen sharply since its
2007 peak, reflecting the reluctance of banks to make loans on the scale
that they had during the housing bubble.
A heavy overhang of foreclosures is a reminder of the dangers of easy
lending, and a waft of litigation associated with foreclosures is, not
surprisingly, limiting the desire of banks to lend to anyone who might, in
the future, default. New regulations are reducing bank profitability in
certain areas, forcing banks to raise capital, and generating uncertainty
about business conditions for banks in the years ahead. Finally, the Federal
Reserve’s policy of reducing longterm interest rates, while making
mortgages more attractive to borrowers, are also making them much less
attractive to lenders by squeezing net interest margins and increasing the
risk of loss once the Federal Reserve finally allows long rates to rise.
However, having said all of this, in both economics and finance, direction
can be as important as levels. As shown in the chart to the right, lending
tightened in the aftermath of the housing bubble, but since then banks have
been gradually easing lending standards despite a very unfavorable
Washington environment.
In the decision to buy a home, as in any investment decision, it is very
important to distinguish between levels and changes. Home prices, housing
demand and home building are very low, but they all seem set to increase.
Housing inventories remain too high, but they are on a downward trend. And
while the attitudes of both home buyers and home lenders remain very
cautious, they should become less so in the years ahead.
The implications of a housing rebound If the housing market does begin to
recover, what could this mean for the economy? The short answer is: a lot.
First, on average, over the last 50 years, home building has accounted for 4
.5% of U.S. GDP, while in the second quarter it accounted for merely 2.2%.
If it took five years for housing to return to that average level, then home
building alone would directly add almost 0.5% to real GDP growth each year.
Moreover, on average, over the last 50 years, U.S. housing starts have
amounted to 1.491 million units per year. In every month since April 2007,
starts have fallen short of this number, with a cumulative shortfall
relative to this average of now 3.3 million houses. Moreover, a steady five-
year climb back to this level from the current starts rate of 658,000 would
result in a further cumulative shortfall of 1.2 million units relative to
normal demand, potentially pushing inventory levels to well below their long
-term averages.
In addition, a rebound in home prices would have a dramatic impact on
household net worth. Housing is a leveraged investment. As mentioned earlier
, even ignoring today’s super-low mortgage rates, home prices would have to
rise by roughly 27% from current levels to get back to their average
relationship to average household income. If this took five years and
average household income grew by 4% per year over that period of time, then
home prices would rise by roughly 55% over the next five years. However,
since home equity now represents just 40% of home prices, an increase of 55%
would more than double the housing wealth of U.S. households.
Rising home prices should also help lending in the economy in general, as
they would reduce foreclosures and the reserves that banks need to hold
against potentially bad loans. Moreover, more lender confidence about the
state of the housing market should lead to a more general easing of lending
standards back to more normal levels.
However, perhaps most important would be the general effect on confidence of
a rebound in U.S. housing. For years, the purchase of a home was a point of
celebration, a first solid building block for a family’s financial future.
The optimism that embodies has been sadly lost in recent years, and the
fretful pessimism that has replaced it has discouraged risk taking across
all dimensions. When housing recovers, it should improve the public mood,
spurring more spending, more hiring and more investing. While housing has
always been central to improving family fortunes, today, more than ever
before, it is central to a recovery in the nation’s. That is why it is
important for America to realize that when it comes to housing, now is a
time to buy. |
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