Top Metro Areas – Single-Family Detached Concentration

In a recent study, NAHB examines eight key housing statistics from the 2012 American Community Survey (ACS). This post takes a closer look at one of those statistics; the share of homeowners living in single-family detached housing.

The share of homeowners living in single-family detached housing is calculated by taking the total number of single-family detached units divided by the total number of owner-occupied units. The figure gives a snapshot of the housing stock for a specified geography.

The metropolitan area with the highest share of homeowners living in single-family detached housing is Wausau, WI with 96.2%. The national share of homeowners living in single-family detached housing is 82.3%.

With the exception of Modesto, CA, all of the metropolitan areas in the top ten are located in the Midwest. All metropolitan areas in the top ten have median home values below the national figure. The median value of owner-occupied housing units for the entire United States in 2012 was $171,900.

Four of the ten areas with the lowest share of homeowners living in single-family detached housing are located in Florida. In general, metropolitan areas with low shares of homeowners living in single-family detached housing are also densely populated.

The metropolitan area with the lowest share of homeowners living in single-family detached housing is the New York-White Plains-Wayne (New York) metro division. The New York metro division is the most populous at nearly 12 million.

 

• The complete series is provided below.

1. Eye on Housing – Top Ten Metro Areas – Owner Occupied Housing Units
2. Eye on Housing – Top Ten Metro Areas – Homeownership Rate
3. Eye on Housing – Top Ten Metro Areas – Vacancy Rates
4. Eye on Housing – Top Ten Metro Areas – Single-Family Concentration
5. Eye on Housing – Top Ten Metro Areas – Median Income and Home Value
6. Eye on Housing – Top Ten Metro Areas – New Construction

Share of Past Due Mortgages Continues to Decline

Data from the Mortgage Bankers Association shows that the share of mortgage loans that are past due declined by 55 basis points (one basis point = one hundredth of a percent) to a seasonally adjusted rate of 6.5% in the third quarter of 2013. This is the lowest rate since the second quarter of 2008. Over the past year, the total share of mortgage loans past due has declined by 0.97 percentage points to a not seasonally adjusted rate of 6.7%. Although the current share of mortgage loans past due has declined from the high it reached in 2009, it remains above the average level over the 20 years between 1980 and 1999. As the chart below illustrates, the share of mortgages past due rose by 6.4 percentage points on a not seasonally adjusted basis to 10.4% in the fourth quarter of 2009. Since then, the share of mortgages past due has abated somewhat, falling by 3.7 percentage points to a not seasonally adjusted rate of 6.7%. However, it remains a 1.8 percentage points above the 1980-1999 average.

The recent decline in the share of mortgage loans past due reflects a decrease in the number of mortgages past due. As Chart 2 illustrates, the number of mortgages past due has declined on a 4-quarter basis for 13 consecutive quarters. In the third quarter of 2013, the latest data available, the number of mortgages past due fell by 14.8%.

The number of “whole” mortgages, mortgage loans without a late payment, has declined in recent quarters as well. In the third quarter of 2013, the number of whole mortgages fell by 1.3%. The decrease in the third quarter of 2013 marked the eighth consecutive year-over-year decline, following 3 quarters in which the number of whole mortgages did not decline. However, the decrease in the number of whole mortgages has been smaller than the decline in the number of mortgages past due. As a result, the number of mortgages past due as a share of total mortgage loans serviced has fallen.

The decline in the share of mortgages past due indicates that the mortgage market is returning to normal. However, this measure of mortgage market health may not provide a full picture of a return to normality in the mortgage market because it masks the decline in mortgage loans serviced. The number of mortgage loans serviced overall, the sum of the number of loans past due and the number of loans that are whole, has fallen on a year-over-year basis for 20 consecutive quarters. According to Chart 3, the number of mortgage loans serviced fell by 2.4% in the third quarter of 2013. The decline in the total number of mortgage loans indicates that while the growth in the number of mortgage loan defaults is slowing (outflow), fewer new mortgages are being originated to replace those that ultimately default (inflow). The net outflow in the number of mortgage loans serviced may reflect tighter lending standards that make obtaining a mortgage more difficult, but could also reflect the growing prevalence of all-cash deals to finance home purchases.

The Ripple Effect of Home Buying

Using the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics (BLS), NAHB Economics research shows that a home purchase triggers additional spending on appliances, furnishings, and remodeling. Such spending typically exceeds that of non-moving home owners and persists for two years after moving.

The NAHB analysis compares spending behavior among three groups of single-family detached home owners: buyers of new homes, buyers of existing homes and non-moving owners. During the first two years after closing on the house home buyers tend to spend on appliances, furnishings and property alterations considerably more compared to non-moving owners. However, home buyers tend to be larger households with children, and on average wealthier, with higher levels of education and concentrated in urban areas. Any of these factors could potentially explain higher spending on appliances, furnishings and remodeling by home buyers. Thus, the NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behavior of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving. 

Looking at spending patterns of new home buyers and identical households that do not move, the differences are largest on furnishings. A typical new home buyer that buys a new home is estimated to spend in excess of $3,000 more on furnishings than an identical household that stays put in a house they already own. The elevated level of spending persists into the second year as new home buyers spend additional $2,000 over their typical budget on furnishings.

Similarly, moving into a new home triggers higher levels of spending on appliances. A typical new home buyer that moves into a new home is estimated to spend $1,005 more on appliances during the first year compared to a non-moving owner. The difference shrinks to $348 during the second year and goes away after that.

In the case of property repairs and alterations the differences are smallest, $740, and last only one year, which is not surprising considering that most households would not want to spend years in a house with ongoing remodeling projects.

Buying an older home also triggers additional spending. The typical buyer of an existing home tends to spend close to $4,000 more on remodeling, furnishings, and appliances compared to otherwise identical homeowners that do not move. However, in case of buying an older home, most of this extra spending goes to remodeling projects, more than $2,000, and occurs during the first year after closing on the house. Only the additional spending on furnishings tends to persist beyond the first year.

The statistical analysis further shows that this higher level of spending on furnishings, appliances and property alterations is not paid by cutting spending on other items, such as entertainment, transportations, travel, food at home, restaurants meals, etc. This confirms that home buying indeed generates a wave of additional spending and activity not accounted for in the purchase price of the home alone.

In summary, the NAHB analysis shows that during the first two years after closing on the house a typical buyer of a new single-family detached home tends to spend on average $7,400 more than a similar home owner who does not move, including $4,900 in the first year after purchase.  Likewise, a buyer of an existing single-family detached home tends to spend about $4,000 more than a similar non-moving home owner, including $3,600 during the first year. The overall ripple effect of home buying does not stop here, as producers of appliances, furnishings and remodelers spend their additional income paid by home buyers and trigger further waves of economic activity.

National Delinquency Survey Points to a Falling Serious Delinquency Rate

According to the Mortgage Bankers Association, the delinquency rate for mortgage loans on one-to-four family residential properties was 6.8% on a not seasonally adjusted basis in the second quarter of 2013, up slightly (0.06 percentage point) from its level in the first quarter, but 0.6 percentage points lower than its level in the second quarter of 2012.

The technical increase in the delinquency rate over the quarter reflected a 29 basis point decline in the share of mortgages 90 or more days past due that was more than offset by a 35 basis point increase in both the proportion of mortgages that were 30-59 days past due, +30 basis points, and 60-89 days past due, +5 basis points.  One percentage point equals 100 basis points.

Meanwhile, the share of mortgages that were seriously delinquent, mortgages that are 90 or more days overdue plus properties in foreclosure, fell by 51 basis points to 5.9% in the second quarter as the 29 basis point drop in the share of mortgages that were 90 or more days past due was joined by a 22 basis point fall in the share of properties in foreclosure. Since the second quarter of 2012, the share of homes in serious delinquency has fallen by 143 basis points.

Despite the recent uptick, the share of mortgages 30-59 days past due is not a strong indicator of serious delinquency. Chart 1 decomposes the share of delinquent mortgages according to their time past due and includes the share of properties going into foreclosure. According to this chart, only a portion of mortgages 30-59 days past due become seriously delinquent. Between the 1980 and 2006, the share of mortgages 30-59 days past due averaged 3.2% while the share of mortgages 60-89 days past due and 90 or more days past due both averaged 0.8% and the share of mortgages in foreclosure averaged 1.0%. A foreclosure rate that is greater than the share of mortgages 60-89 days past due and 90 or more days past due reflects the build-up of properties in this stage due to the length of the foreclosure process. The majority of the mortgages that become 30-59 days past due either remain in this stage of delinquency or cure.

In contrast, the share of mortgages 60-89 days past due closely tracks the percentage of mortgages 90 or more days past due and the proportion of mortgages in foreclosure. The similarity in rates over time suggests that that mortgages 60-89 days past due are more likely to become seriously delinquent. As a result, the share of mortgages that are 60-89 days past due is a good indicator of whether a property will become seriously delinquent. Despite the slight quarter-over-quarter rise in the percent of mortgages 60-89 days past due, Chart 1 shows that this measure is trending down, indicating that serious delinquencies should continue to fall.

Single-Family, Multifamily, Home Improvement Spending All Up

Total private residential construction spending increased to a seasonally adjusted annual rate of $328.6 billion in May 2013, the fastest pace of residential construction since October 2008. The reading is 1.2 percent above the positively revised April estimate and 22 percent higher since a year ago.

All three components of residential construction spending registered gains. New multifamily construction spending showed the largest increases, rising 2.5 percent since April and 51.7 percent since May 2012. It is now at a seasonally adjusted annual rate of 31.8 billion.

Spending on new single-family homes increased to an annual rate of $166.3 billion, the rate unseen since August 2008. On a year-over-year basis, new single-family construction spending increased 33.2 percent.

Finally breaking the decline that started in January 2013, home improvement spending also registered gains. Remodeling spending increased to an annual rate of $124.2 billion, 1.9 percent above the April reading, 7 percent above the year ago, but still below the spending rate registered during the first quarter of 2012.

House Prices Move Higher

Nationally, house prices continued to rise in April, contributing to the overall recovery in U.S. house prices. According to the most recent release by the Federal Housing Finance Agency, U.S. house prices rose by 0.7% on a month-over-month seasonally adjusted basis in April. This is the fifteenth consecutive monthly increase for the House Price Index – Purchase Only. Since January 2012, house prices have risen by 9.9%.

The April increase in house prices was geographically widespread, increasing in every division of the country. As Chart 1 illustrates, the largest gains took place in the Pacific and Mountain divisions, regions of the country containing states, like Nevada and California, that experienced the largest price declines.

Meanwhile, Standard and Poor’s reported that its house price index also rose in April. According to the most recent release, the S&P/Case-Shiller House Price Index – 20-City Composite grew by 12.1% on a year-over-year not seasonally adjusted basis. Following 20 consecutive months of year-over-year declines, house prices registered their eleventh consecutive year-over-year increase in April. House price growth in San Francisco, a city in the Pacific region, and in Las Vegas, a city in the Mountain region, eclipsed house price growth in Phoenix, a city in the Mountain region. However, as chart 2 illustrates, each of these cities in addition to Atlanta experienced year-over-year house price growth greater than 20.0%. April is the eighth consecutive month that Phoenix has experienced a 12-month price increase greater than 20.0%.

Rising house prices for existing homes, such as those counted in the FHFA and in the S&P/Case-Shiller House Price Indices, is a net positive for the housing recovery. Recovering prices will improve conditions for builders, lead to higher inventories of new construction, and motivate potential sellers of existing houses to come back into the market. Data released jointly by the US Census Bureau and the US Department of Housing and Urban Development showed that newly constructed single-family houses sold at a seasonally adjusted annual rate of 476,000 in May, 2.1% higher than level of new single-family houses sold in April. Going forward we expect house prices to continue to rise, by 9.5% overall in 2013 and by 4.5% in 2014.

For full histories of the 20 markets included in the Case-Shiller composite, click here cs.

For full histories of the FHFA US and 9 Census regions, click here fhfa.

Homeownership Rate Inched Lower During the First Quarter

The homeownership rate declined slightly during the first quarter of 2013, falling to a seasonally adjusted reading of 65.2%. This marks the lowest reading since the end of 1995 and a 4.2 percentage point drop versus the peak observed in mid-2004. While the homeownership rate is somewhat lower than its 20-year historical average, the rate has not fallen as low as some analysts anticipated, due in part to a sluggish pace of new household formations. In other words, though the numerator (owner-occupied households) has fallen, still-slow growth in the denominator (total occupied households) has kept the homeownership rate from falling lower.

Across age groups, homeownership rates either remained flat or declined versus the first quarter of 2012. The largest percentage point decline in the homeownership rate occurred within the group of households headed by someone aged between 35 and 44 years (1.3 percentage points), followed by a 0.8 percentage point decline within the 55-64 householder cohort. Each of the householder cohorts have registered declines in the homeownership rate since peaking around the mid-2000s, but the relative degree of contraction across cohorts has been evident.

Householders aged between 35 and 44 years have experienced the largest decline in homeownership rates, falling ten percentage points in the past eight years and reaching an all-time recorded low of 60.1% during the first quarter of 2013. By contrast, the homeownership rate for households headed by someone 65 years or older is currently 1.4 percentage points below its peak and has remained above 80% in all but two quarters since the second half of 2007.

The continuing slide in homeownership rates among the 35 to 44 and under 35 householder age groups are a concern for longer-term housing demand going forward, fluctuations within the 45-54 and 55-64 cohorts will affect the outlook with greater immediacy. Combined, these cohorts are the largest groups of homeowners and represent a primary source of “move-up” demand, whereby current owners trade their existing homes for newer and/or larger living spaces. The rate at which householders in these age groups become homeowners (again, in most cases) will be an important part of the housing market’s overall recovery.

The Census Bureau’s quarterly survey also provides estimates of vacancy rates among the stock of owner and rental housing. The rental vacancy rate continued its downward trend during the first quarter of 2013, declining 20 basis points from a year ago to 8.6%. In addition, on a 4-quarter moving average basis, the rental vacancy rate dropped to its lowest reading since the end of 2001. The homeowner vacancy rate dipped 10 basis points compared to the first quarter of 2012 and has held steady at a 4-quarter moving average of 2% in each of the last two quarters. In addition, the homeowner vacancy rate has trended significantly lower since the toughest days of the housing market downturn and remains in range of levels occurring prior to the boom and bust period.

Newly Proposed Rules Could Raise Rates on Consumer Mortgages and Price Out Households

On balance, the residential housing market has been improving in recent months, but the pace of recovery is partly restrained by frictions in the mortgage market.

Against this backdrop, U.S. regulators have proposed comprehensive new regulatory capital requirements for U.S. banking organizations.  These newly proposed rules will serve to implement Basel III, the most recent revision to international bank regulatory capital standards, in the U.S. They also reflect the implementation of certain aspects of the Dodd-Frank Act, excluding the Dodd-Frank Act’s language addressing qualified mortgages and qualified residential mortgages, which was signed into law during the summer of 2010.

The Basel III regulations directly address single family residential loans that are made to consumers and remain on bank balance sheets.  They will also target the loans made to builders of these homes as well as off-balance sheet loans.  The analysis described below focuses on Basel III’s impact on single family residential loans that are made to consumers and remain on bank balance sheets. Future work will assess the impact of newly proposed regulations on builders of single family homes and on the residential mortgages that are moved off of a bank’s balance sheet.

If adopted as proposed by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, the U.S. version of Basel III would require banks to increase the amount of capital used to fund the single family residential real estate loans that remain on the balance sheet of banks by assigning these loans a greater risk weighting. The risk weight identifies the amount of an asset, in percentage terms, which must be backed by at least 8.0% of capital. In addition, the FDIC would separate single family residential mortgages into two risk categories, category 1 and category 2. The proposed definition of category 1 residential mortgage exposures would generally include traditional, first-lien, prudently underwritten mortgage loans. The proposed definition of category 2 residential mortgage exposures would generally include junior-liens and non-traditional mortgage products.

Raising the risk weight as described above increases the cost of consumer loan funding by both increasing the amount of relatively more expensive capital funding required and lowering the amount of relatively less expensive deposit funding needed. As a result, by raising the total cost of funding, implementation of the newly proposed rules directly addressing on-balance sheet mortgage purchase loans for single family homes could further restrict the supply of mortgage credit. In a competitive market, higher funding costs would produce a matching increase in consumer mortgage rates and price some households out of a real estate market

Recent calculations made by the Mortgage Bankers Association (MBA) demonstrate how these new regulations will likely raise funding costs and mortgage rates for some consumers. According to the MBA, a category 1 mortgage with both a loan-to-value ratio (LTV) of 95.0 and mortgage insurance would cost 2.52% under current capital requirements. However, under the proposed Basel III risk weights, that same mortgage would cost 3.04%, an increase of 0.52 percentage points. The increase in cost, and by extension the mortgage rate faced by these consumers, reflects an increase in risk assigned to these mortgages. Under current capital requirements, these loans are assigned a risk weight of 50.0%, while under Basel III rules, the risk weight would be 100.0%.

Research by NAHB illustrates the effect that higher mortgage rates would have on housing affordability. This research indicates that an increase in mortgage rates from 2.5% to 3.0% would leave more than 2.2 million households priced out of the market for a median-priced new home.  The decline in housing affordability that results from increased consumer mortgage rates reflects an increase in both the monthly mortgage payment and the minimum income needed to purchase a home. NAHB estimates that an increase in mortgage rates from 2.50% to 3.00% would raise monthly mortgage payments by $56 per month and raise the minimum income needed by $2,373 to $51,871.

Residential Construction Spending Surges on New Construction and Remodeling

Private residential construction spending jumped 2.8% on a month-to-month basis during September 2012. The preliminary estimates for July and August were revised higher as well, from previous prints of -0.1% and 0.9% to 1.3% and 1.2%, respectively. Nominal spending activity on private residential construction has expanded in 13 of the last 14 months, putting it nearly 21% above September 2011 and at its highest dollar value since the end of 2008.

The new single-family homes spending category saw growth accelerate in September, gaining 3.9% from the previous month and 26% from last year. Save for a one month downward blip in March 2012, construction spending on new single-family housing has increased solidly since last summer and risen more than 50% since hitting rock bottom during the second quarter of 2009. Data sources such as housing starts and NAHB’s own HMI continue to offer evidence that construction of new single-family homes is on the mend and given that building permits are at their highest level since mid-2008, construction activity is expected to rise for the foreseeable future.

Multifamily construction spending registered its 12^th consecutive month-to-month increase, gaining 1.3% over August 2012. Although the multifamily sector has posted the largest percentage increase in spending activity compared to its cyclical low (73%), the overall trend in spending growth has slowed in each of the last three months. While this might represent a lull, spending should continue to expand over the near term as multifamily starts have exceeded 200,000 units in 8 of the last 9 months and permits for 5+ units surged to a four-year high in September.

Nominal spending on home improvement activity increased 2%, more than recouping the 1.1% month-to-month drop that was reported in August. While remodeling has bounced around for much of the past two years, the level of spending activity has trended appreciably higher over the past few months and is now sitting at a 4-year high. Indeed, NAHB’s Remodeling Market Index (RMI) indicated professional remodelers’ perceptions of current market conditions are at their highest levels since 2005.

Homebuilders Struggle to Add to Payrolls

Starts of new single-family homes have jumped approximately 26% since May 2011 (and more than 46% since bottoming out in early 2009). Unfortunately, the rebound in starts does not appear to have bolstered job creation within the residential construction sector as payrolls have inched 1% higher in the past year. The homebuilding industry as a whole, which includes building contractors and specialty trade contractors, was the hardest hit segment of the construction sector during the economic downturn as employment tumbled by 1.5 million on net (or 42%) from the peak. By comparison, the nonresidential and nonbuilding (e.g. highway and street) saw total payrolls decline by 23% and 18%, respectively.

While payrolls in the overall homebuilding industry have increased only modestly off their trough, there have been some glimmers of improvement within the industry. For example, a rising pace of apartment construction has yielded an appreciable gain in job growth, with employment levels averaging 3.7% higher through the first 4 months of 2012 compared to 2011. Remodeling employment has also held up quite well, increasing 5.7% on the same basis. The traditional reasons for remodeling such as repairing/replacing old components, adding newer amenities and expanding the living space continue to drive activity; however, tax incentives for energy efficient equipment have also moderately bolstered remodeling activity. Falling home prices have impacted the remodeling decision for homeowners. As prices have fallen, many homeowners have lost a sizable share (in some cases all) of the equity in their homes and selling could result in a potential loss. Consequently, households seeking to avoid moving have instead opted to remodel their current home rather than risk a potentially unfavorable outcome from selling.

Note: Data for 2nd chart seasonally adjusted by NAHB