Housing in USA
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- Published: Wednesday, 03 June 2020 05:08
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Housing in USA:
This section deals with housing in USA, whether you are renting or live in your owned house. It deals with all housing issues: buying, selling, renting, mortgage, utility bills, etc. But before we get in the details, let's take a look at some basic housing stats in USA. Just like all other USA stats, housing stats before 1980 are useless, as gold standard was abolished in early 1980, which allowed government to print infinite money. This ability to print and dump infinite money in markets, allowed assets to be priced differently. Housing is no different.
Basic housing stats from year 2018:
There are 132 Million housing units (house, apartment, or any separate living quarter), which is 20% more than the number of households (which is 112M as shown in basic facts section). As per 2009 AHS survey on HUD website, There are 130 Million residential housing units in the U.S.of which only 86 percent are occupied.
That implies 112 Million units were occupied, which matches closely to the number of households. Of these 112M occupied units, 76M were owner occupied and 36M were rented. Of the remaining 19M that were not occupied, 5M were for rent/sale (of these 1M were already rented or sold, but no one had moved in yet), 2M were for sale only, 5M were seasonal homes and 7M were others (foreclosures, etc). So, in essence, most of these vacant housing units are the ones that are in flux, where someone has moved out or is going to move in.
Of 132M housing units, 83M units are single detached houses, 7M are attached houses (as townhomes), 9M are condo, 1M are co-ops, 9M are manufactured or mobile homes, and remaining 23M are apartments. Since 36M units are rented, that implies about 13M units rented are houses rented by individuals.
So, there's a glut of 4M units (5M that were up for rental or sale minus 1M that were already rented or sold) that need rentals but there are no renters available, as everyone has a unit occupied !!! That's reasonable, since some % of population is always moving, so there will always be vacant houses at a given time. Since apartments try to remain close to 90% occupancy, they have about 2.5M units for rent with remaining 1.5M available from individuals as houses, condo, etc. Looked in other way, out of 40 million units looking for renters, only 36M were rented, which implies 90% occupancy rate. What that implies is that if you were to rent your house, count on it being occupied only 90% of the time.
A very detailed list of housing units can be found here at AHS: http://www.census.gov/housing/ahs/data/ahs2009.html
Table 1-1 gives the most basic information.
House sales: There are about 110M housing units which are not apartments. These are owned by individuals, and go on sale or rent. About 5M homes sell in a year, of which 4M are existing single family homes, 0.5M are existing condo, townhome, co-op, and remaining 0.5M are new homes. This implies that 5% of the households buy or sell house every year, with 0.5% new buyers entering the housing market every year. Since population increases by 1M households every year, 0.5M buy new houses, while 0.5M get into apartments. Since 1959, there have been more than 1M new house construction every year ( https://www.census.gov/construction/nrc/pdf/bpann.pdf ). This includes stand alone houses, condos/townhomes as well as rental apartments (with each unit of rental apartment counting as 1 housing unit). Also, new apartment units have averaged about 0.2M per year, but since 2016, they have crossed 0.3M per year ( https://www.rentcafe.com/blog/rental-market/us-apartment-construction-at-a-20-year-high-in-2017/ ). This implies that 2017 onwards, there are about 0.9M new house/condo/townhomes + 0.35M apt built every year, while household are increasing by only 1M per year, leaving a glut of 0.3M new residential units every year, on top of 4M housing glut that was already there from 2009.
One data that you will usually see in news is "new housing starts" and "new home sales" in monthly reports. One data that will stand out is that "new housing starts" are always 2 times or more of the "new home sales". You would expect both of them to be roughly the same. Reason for this discrepancy is that "new housing starts" include all construction = stand alone home/condo/townhome/rental apt, etc, while "new home sales" are recorded only for stand alone 1 unit homes. As you can see from link above, for 2017, there were 0.9M house/condo/townhome, and 0.35M apt. What we care about is the "new housing starts" as that is the number that is going to absorb the population growth.
Since 1959, 78M housing units have been built, while number of households increased from 50M to 125M. So, increase in housing units have been pretty much in line with increase in households. But as population increase slows down, either more people living separately are needed, or more immigrants are needed to consume glut of housing supply. Again, immigrants and divorces come to the rescue of housing
house price since 1991 is available at this link (based on mortgage purchase price): https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index-Datasets.aspx#mpo
One of these links here gives housing data for top 100 metroploitan areas since 1991: https://www.fhfa.gov/DataTools/Downloads/Documents/HPI/HPI_PO_metro.txt
There is a graph for 100 years of housing prices: http://observationsandnotes.blogspot.com/2011/06/us-housing-prices-since-1900.html
Other housing price data: https://dqydj.com/historical-home-prices/
If you see data for USA, you will notice that prices doubled in 24 years from 1991 to 2013, implying 3% annual appreciation. Looking at 100 years of data, we again see the same trend. House prices had 3% appreciation while avg inflation was also 3%. So, house prices remained the same over 100 years when accounted for inflation. This is because, cost of everything related to building house (labour, material, land, etc) goes at the same rate as inflation. However, since 2012 house prices have started appreciating much faster than inflation. If house prices double every 10 years, that implies 7% annual appreciation. Assuming mortgage rates are 5%, property taxes + insurance of about 2%, that implies that you are living in the house for free, since all your house expenses are paid for by appreciation of the house. So, once you buy a house, you have entitled yourself and your future generations for free rental as long as sun exists. Assuming, you never pay off your mortgage (keep on refinancing it every 5 years to next 30 years). This also means that you can buy a property financed 100% with a loan, rent it for free, and still not lose money, since price appreciation will make you whole.
Home Prices Vs GDP:
To the first order, GDP is a measure of total amount of money circulating in the system. It makes sense that home prices will follow the GDP. IF we look at GDP and home prices over last 75 years, we can see a correlation. Below is the graph for median home prices:
https://fred.stlouisfed.org/series/MSPUS
We'll assume 40M houses (excluding apartments) for year 1950, and add 1M houses every year. GDP stood at $300B in 1950, while median home prices were about $18K. Assuming 40M houses with avg price of $18K, total housing value was 40M*$18K=$720B in 1950 which is about 2.5X of GDP.
By 1980, GDP went up 10X to $3T, while median home prices rose 3X to $60K. Assuming 70M houses and median price of $65K, that gives total housing valuation of $4.5T, which is 1.5X of GDP. In these 30 years, GDP increased much faster than home prices. Fast forward to 2007 (before the big recession), GDP was $15T (5X increase), while median prices were $260K (4X increase), implying total housing worth = 110M*$220K=$25T, which is about 1.6X of GDP. As of 2022, GDP=$26T (1.6X increase), while median home prices are almost $500K (2.2X increase). Assuming 120M houses, that total housing worth = 120M*500K = $60T. I read in an article that total US housing was worth $50T. Either way, housing market is 2X the GDP.
In the years starting from 2000, home prices increased faster than GDP. GDP went from $10T to $25T (2.5X), while median home prices went from $170K to $480K (2.8X). In the years since the pandemic of 2020, home prices accelerated much faster than GDP. GDP went from $20T to $25T (25% increase),while median home prices surged from $320K to $480K (50% increase) from 2019 to 2022.