Article

Special Briefing on West Coast Markets

By Edward J. Pinto | Tobias Peter

March 25, 2020

Slides 

The American Enterprise Institute’s Housing Center released a special update to the AEI Housing Market Indicators on March 24, 2020.

In the first presentation of the webinar, Tobias outlined the AEI Housing Center’s Housing Market Indicators, an extensive set of housing metrics and interactives available to the public for free on the housing center’s website. He highlighted the Housing Center’s latest work on land prices and land shares, which previous research by the Center had found to be a significant predictor for a decline in house prices during the last boom/bust cycle. Given the current economic climate, these indicators could serve as a building block to identify areas most affected by a downturn (“canary in the coal mine”). Tobias also showed the Center’s latest research relating to affordability and supply, new construction sales, and home prices.  

Below is a slide from Tobias’s presentation featuring AEI’s land price and land share indicators.  The interactive shows the ZIP Code change in land share for the 100 largest metros between 2012 and 2019. The change in land share can help identify areas highly susceptible to price downturns. Once again traditional boom-bust areas (California, Arizona, Nevada, and Florida) are at risk as land shares in certain ZIP Codes there have increased by over 20 ppts., which implies a tripling of land prices.  New areas (Washington, Oregon, Idaho, and Colorado) display heightened risk. While the Northeast has largely missed the land price boom, highly leveraged entry-level areas in the region may also be at risk.  

Similar maps at the metro-level for greater detail are also available online.

Change in land share in the united states: The map shows the change in land price or change in land share by zipcode for the 100 largest metros from 2012-2019. The Northeast corridor and has had the smallest changes, whereas the west coast and Florida have experienced greater changers in land price or land share.

After a brief Q&A with the virtual audience, Ed started the second presentation, which began with a preview of AEI’s Market Trends Report, a tool which provides extensive market metrics at fine levels of geography for over 110 million properties. Ed then moved on to the center’s latest research on walkability which, among other things, has shown that relative walkability provides a home price appreciation (HPA) lift over 90% of the time in the top 50 metros, even for heavily car-dependent areas.

The second part of Ed’s presentation focused on the potential of accessory dwelling units (ADUs) to add housing supply in Seattle, Oregon and California. The key takeaway is that, while ADUs are useful tool as far as adding supply, regulatory barriers and arbitrary fees must be removed for ADU construction to reach its full potential. Additionally, ADUs are far from the ‘silver bullet’ to address the nation’s housing shortage; 2-, 3-, and 4-unit homes, which we term ‘Light Touch Density’ or LTD structures, are a much more promising solution and constitute the low-hanging fruit of housing supply solutions.

Below is a slide from the second part of Ed’s presentation which pertains to Phoenix, AZ, a perennial boom-bust housing market:   Rampant home price appreciation has fueled  even greater levels of land price appreciation.  This slide indicates the zip codes most susceptible to high default rates under stress. These zips are mostly entry-level and lower income, with many having high minority populations.

Phoenix metro: zip code analysis: As median sale price declines, change in land share 2012-2019, current mortgage risk index, and historical mortgage default rate all increase dramatically. The graph shows that a 31% increase in land share corresponds to an 83% increase in house price appreciation, and 414% increase in land price. These far outstrip wage growth.

The AEI Housing Market Indicators provide accurate and timely metrics for the housing market. These include Mortgage Risk/Leverage (with a particular focus on agency first-time buyer volume and risk), house prices and appreciation trends, housing sales (new and existing sales whether institutionally financed, cash, and other-financed), and inventory levels. Since the housing market is influenced by many different factors, all need to be considered together to better understand market trends.

Presentation 1- AEI Housing Market Indicators

Presentation 2 Part 1- Market Trends Report

Presentation 2 Part 2- Walkability & Variability in House Price Appreciation; Housing Supply (with a focus on Accessory Dwelling Unit activity), and Zip Level Collateral Risk Indicators

 

Please find materials from our monthly call below. If you would like to receive invitations to our monthly update calls, please email [email protected]. For data on mortgage risk, please use our Mortgage Risk Index Interactive.

Audio Recording

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