Great article from Chief Economist, Jed Kolko
Republicans and Democrats are taking sides about whether Americans are better off than they were four years ago – and who gets the blame or the credit. To help voters cut through the election spin, we checked the facts on the housing market, comparing today with January 2009, when Obama took office. On most counts, the housing market is in much better shape than four years ago:
Prices have stabilized. The huge decline in home prices started long before Obama took office. When Obama took office, prices were in free fall, and now they have stabilized. From April 2006 to January 2009, sales prices fell 29% nationally (Case-Shiller, Composite 20, seasonally adjusted). After Obama took office, prices continued to fall another 7.5% to January 2012. Then, prices turned around, rising 3.6% from January 2012 to June 2012 (the latest Case-Shiller figure). Looking forward, the Trulia Price Monitor shows that sales prices should rise another 2.1% from June to October because asking prices rose by that amount from April to August and tend to lead sales prices by two months. All told, home sales prices on Election Day should be just 2.2% below where they were in January 2009. And, of course, the trend has totally turned around: the year-over-year change in prices was -19% in January 2009 (Case-Shiller) and was +2.3% in August 2012 (Trulia Price Monitor).
Homeownership affordability has improved. Although prices are nearly back to their January 2009 level, affordability has improved because mortgage rates have fallen. The typical mortgage rate on a 30-year fixed-rate loan dropped from 5.05% in January 2009 to 3.60% in August 2012 (Freddie Mac). That drop in mortgage rates reduced the monthly mortgage payment on a $200,000 loan by 16%. For those who can afford the down payment and can qualify for a mortgage (which excludes a lot of people), homeownership is significantly more affordable today than when Obama took office.
Vacancies and inventory are getting back to normal. When Obama took office, there were too many vacant homes and way too much inventory – thanks to the surplus of new homes that were built but not sold during the bubble and the lack of buyers during the recession. Since 2009, this glut of available, vacant homes has been absorbed, as fewer newly constructed homes have come onto the market in 2009-2012 and fewer foreclosed homes are waiting to be sold. The inventory of homes for sale has fallen by 36% from January 2009 to September 2012, according to HousingTracker, which is a return to normal levels. And the National Association of Realtors reports that the “months of supply” of existing homes fell from 9.5 in January 2009 to 6.4 in July 2012 – with 6 considered normal. Vacancies, too, are much closer to normal: homeowner vacancy was down to 2.1% in 2012 Q2 from 2.7% in 2009 Q1 (compared to around 1.7% pre-bubble), and rental vacancy was down by an even bigger amount, to 8.6% in 2012 Q2 from 10.1% in 2009 Q1 (compared to around 8% pre-bubble), according to the Census.
Delinquencies have slowed, even though foreclosures remain high. As the job market picks up, fewer people are falling behind on their mortgages. According to Lender Processing Services (LPS), 7.03% of mortgages were delinquent in July 2012, down from 8.61% in January 2009. Although delinquencies have fallen, foreclosures have increased: that’s because the foreclosure stage is the later part of a long process and therefore lags the improvement in home prices and the delinquency rate. The share of mortgages in the foreclosure process has risen to 4.08% in July 2012 from 2.43% in January 2009. Most of this increase is due to foreclosures backing up in “judicial” states such as Florida and New York, which have a much longer legal foreclosure process. The share of homes in foreclosure is now almost three times higher in “judicial” states than in “non-judicial” states.
Even if the housing market is, in important ways, in better shape than it was four years ago, Obama can’t take much credit for it. Although mortgage rates are lower, credit for that goes to the weak economy and the Federal Reserve. The declines in inventories and vacancies are mostly because new construction plunged after 2007 and has remained far below normal levels – so few new homes have been added to the supply. It is also because there are fewer foreclosed and other distressed homes for sale. And the biggest hangover from the housing crisis – homes stuck in the foreclosure process – is governed more by states than by the feds.
Obama’s main contributions to the housing recovery were the 2009 stimulus, which prevented a worse recession which ultimately boosted housing demand, and the ongoing push to make refinancing more widely available, which has given the economy further modest stimulus. But there’s little that the Administration did – or could have done – to influence the path of home prices and construction and their human costs.
To be sure, even though the housing market may be in better shape than it was four years ago, it’s still far from normal. Trulia’s Housing Barometer shows that “normal” is still years away – and huge housing policy questions, like the future of mortgage giants Fannie Mae and Freddie Mae, are unanswered. Other big challenges remain: mortgage credit is still tight, and four million foreclosures since the start of the housing crisis have left families with wrecked credit, lost homes and personal suffering. Thus, the housing market is nothing to cheer loudly about. But overall, is it better off than four years ago? Surprisingly, yes.