Tag: homeownership

Rental Rates and Housing Price Gaps – What Goes Up Must Come Down?

The International Monetary Fund has some interesting analysis (pdf) on US housing prices, with emphasis on comparison between rental rates and pricing, including some detailed data on the potential for regional corrections. Skip the writeup (for now) and head straight to the graphs at the end. (h/t Paul Kedrosky)

And in the vacancies column…

As of the second quarter – vacant home rates dipped about a quarter point to 2.8% while rental unit vacancies continued to hover in the 10% range, according to this analysis compliments of Calculated Risk.

CalculatedRisk also noted that the homeownership rate has now retreated to mid-2001 levels, meaning the ownership rate is closing in on a 50% retracement to 1995’s jump-off point.

Newton’s Law prevails?

When the housing boom got started

The open question is why?

The consistent sound bite seems to be “the housing boom that began in 2001…as a result of subprime mortgages”. Even today, Paul Krugman gives cover to Fannie Mae and Freddie Mac while trying to pin the problem on sub-prime post-millenia. It’s hogwash. As the chart below shows, the boom really began in 1995:


I initially graphed homeownership against the S&P 500 for shits and giggles, but it does depict how liquidity rolls. What happened in 1995 to set off the explosion?


The 30-year fixed mortgage rate dropped significantly during the early ’90s, but was accompanied by little corresponding uptick in homeownship. Rates rose just over one percentage point in 1994, but soon corrected themselves.

Yet beginning in 1995 homeownership skyrocketed. Earnings followed, and so did stocks. The 2001 recession, triggered by the internet stock plunge and exacerbated by the the 9/11 terrorist attacks, took a swipe at the S&P. The Fed began hammering short-term rates to save people’s IRA accounts, and the byproduct was a continued run-up in housing on the back of more exotic mortgages combined with increasingly lackadaisical lending standards.

The juggernaut was long since in motion. But why?

UPDATE: I dug this up, which seems to claim affirmative action was partially to blame. While the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 did provide for certain low-income mandates and give additional oversight powers over the GSEs to HUD, it seems the actual amount of loans purchased by the GSEs nary broke 1% of their total in any given year since. So while the GSEs touch almost half the overall mortgage market, it’s difficult to see how affirmative action could have gotten such a big ball rolling.