What Is Good Housing?

Little house on the prairie really was little: 12' x 12'.  See Wilder's homestead claim at National Archives.

Dan Zak on the Gentrifying District.

Dan Zak covers 24 hours in the life of a restaurant in Northeast.  His good article is focused on the new diner there, owned by an analyst for the Justice Department.  There's a nice bit about a family in town for the Beck rally, who stop there for a meal and about whom the owner worries (and tracks back to their rental to be sure they're safe).

On a somewhat related note, Matt Yglesias has a post on gentrification and why it's disruptive.

Immigration and Housing

I've still got that bee in my bonnet about the relationship of housing, immigration, and the economy.  Succeeded in getting a question answered on Ezra Klein's blog here.

Institutional Inertia

Two instances of possible institutional inertia today.  Note that I can't be sure on either instance, but I can and do speculate that bureaucracies do not respond rapidly to changing situations, which can be bad or good.

McArdle and her credit union.  
 In this case Megan McArdle and her husband are buying a house.  McArdle goes through their logic of what their maximum is, then calls their credit union, which is willing to approve a loan for twice amount they want, which shocks her.  Here I suspect the credit union never made major changes in its policies in the last decade, at least not in response to the Great Recession.  Most likely their clientele and the geographic area they serve were not subject to a big run-up, and thus the number of foreclosures was within tolerable limits for the credit union.  And even if they weren't, the bureaucratic dynamics of such an institution probably delay their response.


DC and homicides (via Yglesias). DC is on pace to have the lowest rate of homicides since the 1960's, a fact commented on by Yglesias.  What he didn't comment on is the increase in clearance rate, which is something readers of Homicide would be very conscious of.  In this case bureaucratic/political inertia means the number of homicide detectives isn't being reduced as fast as the homicides, so there's more time to pay more attention to each killing, resulting in more clearances.  Here bureaucracy in the way jurisdictions allocate funds means DC is gaining on the down dip; there's a virtuous cycle.  But when homicides increase they'll lose on the up cycle; there will be a vicious cycle.

Immigration and Housing Prices

I still have a bee in my bonnet about the relationship of immigration to housing prices, and the tightening of enforcement to price drops.  I found another bit of support in these paragraphs from a Calculated Risk post:

I can add a little to this story: I know of an individual investor (through a close friend) in the Phoenix area who has bought almost 100 homes over the last 18 months. The investor has shared with me his portfolio. He has only bought single family homes, no condos. His average purchase price was under $35,000 and most of the homes are 3 br / 2 ba.

He is renting the homes, many by the room. Yeah, they sound like flophouses! The investor is starting to have a vacancy problem that he attributes to the new Arizona immigration law that takes effect on July 29th.

 Incidentally the housing prices in Manassas Park are now about half what they used to be.

Rebound in Prince William County

Post had an article on Wednesday describing a rebound in Prince William county, VA. Schools are full and housing is moving.  That fits what I've noted on visits to my mother-in-law in Manassas Park--fewer "for sale" signs up for shorter times.

In my mind this is the way the real estate market revives: the new households formed, whether of immigrants who band together to finance a house, young people finally able to buy instead of rent, low-income households rising up the ladder, all find places where houses are affordable, as in Prince William.  They buy new houses and existing houses.  The owners of the existing houses then may have the money to finance a more expensive house, and so on up the ladder.  Instead of the "trickle-down" theory of wealth, this is the "build from the bottom" theory of housing prices.  (And it's one reason why I've still got the bee in my bonnet that the anti-immigrant fervor of 2005-7, as in Tom Tancredo, helped to pop the housing bubble.)

Anyhow, the future is looking a little brighter.

Housing Sales Revive?

Just judging by my cluster--my next door neighbor's house is now under contract, after having been on the market maybe 30-45 days.  That's much better than a year ago.  Don't know if they got their asking price ($277,000), but if they did the owner made a profit.  I think the bank repossessed it around Jan. 2008, someone in the city picked it up for about $180,000, rented it for a year to college students, then spent a lot of money fixing it up.  So he perhaps made $50-60,000 on his investment.

Prices in the area seem, according to zillow, to be bimodal--a bunch of houses below $200K and some now selling for $275K.

The Housing Market Does Not Make Sense

Looked on Zillow for current house prices in my housing cluster (5 models, about a 20 percent spread among prices when new in early 70's). Today the range is from $130K to $318K. Presumably some of the range is foreclosure discounts and condition variations, but that's an unreal spread.

Immigration and Housing II

Alex Tabarrok at Marginal Revolution joins others in suggesting that encouraging immigrants who want to buy houses in the U.S. is one way out of the recession. That's the same logic as mine, in arguing that anti-immigrant agitation helped take the steam out of the bubble.

In the long run, you only get rid of surplus housing inventory by finding more buyers at the bottom of the ladder or taking the time to work off the surplus.

Thoughts on Housing

I've previously blogged about the connection I saw between immigration and the housing bubble.

One early morning on the road I got to thinking, always dangerous for a bureaucrat. What are the forces in the housing market?

Suppose some mythical day in the past the US had 150 million households and 150 million housing units, that is, everyone is housed and every house is used. What happens next?

1. Disasters--houses get destroyed by fire, flood, etc. Need replacements.
2. Natural increase--people have babies who grow up and want their own household. Need new housing.
3. Immigration--people come to the US and want housing.
4. Movement--people move to where the jobs are, abandoning housing units in the rural areas, the Plains, etc. Need housing in Vegas.
5. Wealth--John McCain gets rich and decides the family needs another house. And another. And another. And another. And another. [Is the solution for our problems for everyone to follow his example?]
6. Smaller households--people get enough money to establish separate households. Want housing.
7. Part-time households--this may be a misnomer, economists may have a term for it and may even have statistics for it. It's the condo near the college for the helicopter parents to live in while visiting baby. I guess if we treat "wealth" as a factor, this would be included there.
   
8. Moving up--people look at their wallets, at the cost of housing, and the Joneses and want a better house.
9. Sharks--people find they can make money by persuading people to buy and sell--whether it's the mortgage brokers, the financiers, etc.
   

Given these sources of demand, builders build, people buy, and pretty soon you get a bubble going as everyone hears there's easy money to be made, not on Wall Street, not on Main Street, but on Housing. The buying and selling adds a final element: even though houses change hands quickly, the number of sales still (I think) lowers the occupancy rate a tad, so a few more housing units are need.

This list puts my immigration claim into perspective--it's a factor, but not a main factor. Good old-fashioned greed, the desire for more, is the main factor.

Quick Hit on Housing

Joel Achenbach tells the story of a Dale City townhouse, built in 1972, which soared in "value" to $250K, the owner refinanced through Countrywide, and now is in foreclosure, trying to sell for <$100K. Toward the end there's a mention of "thousands" of empty houses as an explanation of why it can't be rented. The surplus of houses means either builders overbuilt as part of the bubble and/or households evaporated as people moved back to their native country [my idee fixe]. Truth is, both probably happened, along with more people living with parents--fewer households being formed. Anyhow, Joel's piece is good, as most of his stuff is.

Immigration and Housing

Back to my pet idea, the link between housing crisis and immigration. Yesterday's Post had this article:

"The number of immigrants coming to the United States slowed substantially in 2007, with the nation's foreign-born population growing by only 511,000, compared with about a million a year since 2000, according to Census figures released today. "

Say the housing industry was building 400,000 housing units for immigrants since 2000, and selling them, either to immigrants or to landlords who rented them out. All of a sudden, the demand is halved. I believe the housing market is probably inelastic--takes a big change in price to get someone to downsize or upsize. So the change in immigration probably took the pop out of the housing bubble. Once the bubble burst, the Ponzi-style nature of the securitization of debt that the smart boys on Wall Street had engineered made the consequences much worse than they should have been (as they were when the housing bubble burst back in the 80's.)

Achenbach Visits Manassas Park

Joel Achenbach finds resentment in Manassas Park over bailing out mortgage lenders. I think he missed the immigrant thread, or anti-immigration thread, about which I've blogged earlier.

Ex-Bureaucrat Views the Paulson Bailout

Can't resist commenting on features of the Paulson/Bernanke plan (the text was in both the Post and Times today):

• they were too rushed to think of a snappy title for the legislation, preferably one that forms a snappy acronym. (Gretchen Morgenson uses "TARP"--troubled asset relief program.) That means things were really hectic.
  
• one problem they'll have is in normal times we have a million or two foreclosures a year (too lazy to check the rate, but the point is there's some level of foreclosures that's "normal".) So, do they just take over all securities regardless, knowing they're going to eat the normal stuff, or do they have some way to weed it out. (New bureaucratic programs usually have this sort of problem--it's like paying kids to study, do you stiff the kids who don't need the incentive?)
• the draft legislation makes it not reviewable in court (as has been noted by other bloggers)
• there's no exemption from the Administrative Procedure Act, though I guess the preceding bullet makes this unnecessary. But what it says is there's no legal requirement for transparency (not that Administrative Procedure Act provisions provide that much transparency).
  
• Paulson apparently plans to use Treasury Department to run the program, rather than establishing a special corporation/agency. Might be wise, because it avoids a bit of administrative overhead. But regardless, I hope his administrative people right now are working on outfitting offices, etc. One of the biggest obstacles to doing things quickly in government is the housekeeping functions (where do people work, on what, and how do they get paid).

Read the Morgenson piece for more understanding.

The Housing Slump

182 Manassas Drive, Manassas Park, VA recently sold for $105,000. It was appraised in 2007 for $342,000. That's the measure of the housing slump, and the impact of the Prince William crackdown on illegal immigrants.

My Next Door Neighbors

I blogged about the sales history of the townhouse next door a while back in the context of immigrants pushing up the price of housing until the bubble burst, partially inevitably and partially due to Rep. Tancredo. Prices went up and up, then down. According to the Fairfax County real estate site, my neighbor had bought it for $369,000 in 2006, Wells Fargo took it for $265,000 and sold it to a guy in DC for $187,000 two months ago. !!!

Why The Problems in Financial Markets--A Modest Proposal

Kevin Drum admitted he didn't fully understand what was going on in the financial markets. The commenters on his post tried to explain, and several did a very good job. I was particularly impressed by martin, Ethan Stock James S. MacLean and the very long one by The New York City Math Teacher.

To paraphrase some character in Dickens (Micawber, maybe?): 21 house buyers and 20 houses--result is housing boom and prosperity for all; 19 house buyers and 20 houses--result is housing crash and recession.

So, a modest proposal (tip of hat to Dean Swift). Congress passes legislation granting green cards to everyone currently in the country. That permits a bunch more people to buy houses, which revives the housing market and relieves most of the pressure on financial markets.

Causes of Housing Recession: Tancredo?

I use Tom Tancredo as the symbol of the crusade against illegal immigration. The question is whether the crusade is responsible for the recession in housing, which appears likely to evolve into a general recession.

What's my logic? Over the course of the housing boom, the percentage of people owning homes rose from about 66 percent to 70, if memory serves. Most of that increase is probably people at the lower end of the income scale. My guess, based mostly on the activity in my mother-in-law's neighborhood and my neighborhood, is that many immigrants bought at the lower end. By doubling up (or tripling or more), people could split the mortgage payment and still make it. Many of these immigrants were working home construction. Many were eager to have a piece of the American dream.

So it was a virtuous circle. My next door neighbor sold his townhouse in 1999 for $93,000. The new buyers, D'Amico, did a lot of fixing up and sold it at the end of 2001 for $167,000. They moved to a new house in a new development, probably stretching their money as far as it would go. The buyer was Salvadoran, who shared the house with others. (Good neighbors, not that I'm particularly outgoing.) He paid a high price, at least in terms of the history of the unit since it was built in 1973. But the high price was necessary for the D'Amicos to buy the house they did. It's quite possible some of his roomers built the house that the D'Amico's moved to. The process worked--the Salvadoran family lived there for 5 years and sold for $367,000 in 2006!

So far, everyone is happy. Everyone has ended up with more house and a bigger net worth than they had before. Even I feel good because the value of my townhouse has soared. But now comes Rep. Tancredo and Lou Dobbs and all the others who want to build a fence at the border. All of a sudden it's harder to find construction workers and people who will rent a bed in a house for ridiculous prices. So people pull back, and the bubble starts to pop. And when the gas goes, it goes fast. Zillow.com shows the most recent home sales in the cluster down about 25 percent from their high. And Juan, who paid $367K, is moving out today.

I exaggerate, the housing bubble was a bubble which would have popped even if Tancredo had never existed. But there is a real connection between economic growth and immigration.

[Added] The point is that the demand at the bottom of the ladder pushed up prices all the way up. Now the people who bought late face foreclosures, as described in this article.

Talking Out of Both Sides of My Mouth

The NASCOE site has a letter from the President, in which he says:

Please be aware there are numerous jobs available in WDC. If you are interested in working in WDC go to www.usajobs.gov and check it out. CEPD would also be interested in working with employees outside of Washington in flexible ways to test and develop software. NASCOE hopes to be able to work with them on that opportunity in the future. The MIDAS project will also be looking for folks to be detailed to WDC in the near future. If you have an interest in that keep watching the vacancy announcements!

I once was actively prodding people to move to the DC area. It's still a great place to live (Fairfax county has the best high school in the country) but not to buy. Unless the housing crash gets much worse, I don't see how FSA can get good people to come, unless they're singles who want the big city life or those who have a burning ambition to move up. Of course, the same applies for the teachers in those Fairfax schools.

You Can't Live There Any More

Washington Post buries a report from the Urban Institute on housing prices:

a medical services manager who earned $87,300 a year could afford only 14 percent of the homes in the Washington area last year, compared with 49 percent four years earlier, the study said.

households needed to earn $49,000 a year to afford the region's average monthly rent of $1,226.