Archive for January 2011
My meanderings on housing equilibrium are about to become even more muddled, in a way, and clearer in others.
To wit… in the middle of the just-past decade, before the market started melting down, it was already apparent to researchers that the housing market looked decidedly different than it had before. It was clear that prior to about 1994, the homeownership rate had hovered around 64% for many years. Why, then, did it apparently take-off to higher ground and make a nearly non-stop upward run from then until about 2004?
The “run up” was the topic of a great paper by Matthew Chamber, Carlos Garriga, and Don Schlagenhauf of the Atlanta Federal Reserve Bank, produced as part of their working paper series in September, 2007. For a copy of it, go here.
Their focus was on the “run-up”. Our focus today is on the “run-down”. In short, if they can explain why ownership rates ballooned up in the past decade, then perhaps we’ll have some idea of how far down they will drop in the coming decade.
They find that as much as 70% of the change in homeownership rates can be explained by new mortgage products which came on the market during that period. “Easy money”, which is how this has been described in the press, made homeownership possible for millions of new owners. The remainder of the changes, in their study, are explained by demographic shifts.
There is some intuitive logic in all of this (as there usually is, ex-post, in good empirics). The American population got a bit older during the period in question, as the baby-boomers came into their own and also into an age bracket when homeownership makes a lot of estate and tax planning sense. Since these demographic shifts are still with us, and indeed continue to move in ownership-positive directions, it would suggest that a new equilibrium will probably fall out somewhere higher than the old one.
As of the most recent American Housing Survey, the current homeownership rate in America is 66.7% (down from 69.8% at the peak a few years ago). During the 80′s and 90′s (the boom which followed the 80′s recession), the rates held nearly constant at 64%. The FRB-Atlanta study thus suggests a new equilibrium somewhere between 64% and 66.7% (where we are today). In fact, if you concur that 70% of the boom came from mortgage products (which are no longer available) and the remainder from factors which ARE still at play, then one might surmise that the new equilibrium is close at hand.
We’re all stunned by the attempted murder of Cong. Gabby Giffords in Tucson on Saturday. It’s particularly stunning when you look at what she stands for, her essentially centrist, “let’s all try to work together” approach to things. She is exactly the sort of member of congress we wish all 435 of them were, and which all too few of them actually are.
I’m personally outraged more than most. Lynnda and I met Gabby and her husband Mark (Capt. Mark Kelly, USN, decorated combat fighter pilot, test pilot, and the Commander of the space shuttle Discovery) back in 2009 at Renaissance Weekend in Charleston, and saw them again just a week before the shooting. We partied with them on New Years Eve, and Mark and I were on a program together at Renaissance. Totally ignoring the public persona, they’re terrific people, and from all appearances totally in love with one another. It’s amazing too, when you consider that the two of them have devoted their lives to public service. Gabby was quite successful in business before she devoted her life to public service, and no one needs to tell you that Mark, despite the adventure of his job, takes home about half of what an airline pilot makes.
I’ve sent Mark and the family a letter of condolence and encouragement. They’ve asked that well-wishers show their support by making contributions to two very important charities:
Community Food Bank
3003 S Country Club Rd # 221
Tucson, AZ 85713-4084
American Red Cross, Southern Arizona Chapter
2916 East Broadway Boulevard
Tucson, AZ 85716
I would second that recommendation, and wish Gabby and her family, as well as the families of all of the folks killed in this madness, all the best through this terrible tragedy.