Some Housing Numbers

2012 February 13
by SJ Leeds

Fed Chairman Bernanke gave a speech on Friday.  It was called “Housing Markets in Transition.”  While much of it was based on the Fed white paper that I discussed last week, I pulled the important housing numbers from his speech.  Most of the following comments have been either lifted directly or slightly paraphrased.  Here’s the link to the speech

 

Housing

About 1.75 million homes are currently unoccupied and for sale.  In the first half of the 2000s, 1.25 million vacant homes were the norm.  The Fed says that the number of vacant homes for sale is approximately 600,000 units above its 2004 level.

 

A very large number of additional homes are poised to come on the owner-occupied market.  In each of the past few years, roughly two million homes have entered the foreclosure process.

 

Nationally, house prices have plunged about 30% in nominal terms from their peak and nearly 40% in real (inflation-adjusted) terms.

 

Since 2009, the pace of single-family housing starts has averaged less than 500,000 units per year.  During the 15 years before the financial crisis, the pace of single-family starts had never fallen below one million units per year.

 

By some estimates, declines in house prices have reduced homeowners’ equity by more than 50% in the aggregate since the peak of the housing boom, resulting in more than a $7 trillion loss of household wealth.  (For context, the S&P 500 is worth ~$12.3 trillion – so imagine it dropping by 57% and think of how we’d be feeling right now.)

 

Approximately 12 million homeowners, more than one out of five with a mortgage, are underwater.

 

While estimates vary, homeowners are believed to spend somewhere between $3 and $5 per year less for every $100 of housing value lost.  Based on those estimates, it appears that recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year.

 

Since its peak in 2007, U.S. home mortgage credit outstanding has contracted approximately 13% in real terms.

 

Fewer than half of lenders are offering mortgages to borrowers with a FICO score of 620 and a down payment of 10%, even though such loans could be within the GSE purchase parameters.

 

The propensity of younger households (headed by adults aged 29 – 34) to take out their first mortgage has been much lower recently than it was ten years ago (a period well before the most recent run-up in home prices).  Consumer credit record data show that the share of 29 – 34 year-olds obtaining their first mortgage was 9% in the past two years (mid-2009 to mid-2011) while it was 17% ten years earlier (mid-1999 to mid-2001).

 

Approximately ¼ of the excess supply of vacant homes for sale in Q2 of 2011 was owned by creditors.  This property is referred to as REO (real estate owned).

 

Distressed sales (which includes both short sales and non-auction sales of foreclosed homes by REO holders) now account for 30% of home sales.  The Fed estimates that an additional one million foreclosed properties could be added to the REO held by banks, guarantors, and servicers in each of the next few years.

 

As of early November 2011, about 60 metropolitan areas each had at least 250 REO properties for sale by the GSEs and the FHA.  Atlanta has the largest number of REO properties for sale by these institutions, with about 5,000 units.  The next largest inventories are in Chicago, Detroit, Phoenix, Riverside (California) and Las Vegas.  Each of these other cities has between 2,000 and 3,000.

 

The Fed estimates that approximately 75% of REO properties are in neighborhoods where the median house values and incomes are greater than 80% of the median for the metropolitan area.

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