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Housing recoveries without homeowners: National trends

Historically, the cost of buying a house has been positively correlated with the percent of households that own their home. During 1996 to 2006 in the United States, both the price of houses and the homeownership rate increased. This increasing trend ended abruptly with the global financial crisis, which saw house prices plunge and drove homeownership rates to historically low levels. If homeownership became less attractive in the wake of the financial crisis, we might expect both prices and homeownership to decrease. Similarly, if the current increase in house prices were driven by people buying homes to live in, we might expect the homeownership rate to increase along with prices. However, recent evidence shows that house prices and homeownership are diverging.

The graph shows that, in the wake of the financial crisis, house prices declined by over 25 percent, from an index value of around 180 to around 135. The homeownership rate also dropped from a high of over 69 percent to just over 63 percent, its lowest level since 1980. Unlike in the past, the homeownership rate continued to fall even after house prices began to recover.

Several factors could be driving the decoupling of house prices and the homeownership rate. From the housing supply side, there is a trend toward decreased construction of starter and mid-size housing units. Developers have increased the construction of large single-family homes at the expense of other segments in the market. This limited supply, particularly for starter homes, could result in increased prices for those homes and fewer new homeowners.

There are also several factors affecting housing demand. The wave of foreclosures during the recession may have made people more wary about homeownership. Tighter credit conditions may have reduced access to mortgage credit, placing homeownership out of reach for many households. Real estate investors may be buying properties to generate rental income, simultaneously bidding up the prices of homes while also decreasing the supply of homes available to potential homeowners.

All of the above explanations likely contribute somewhat to the divergence of house prices and homeownership. However, any explanation must consider that this trend isn’t just limited to the United States. In recent years, house prices and homeownership have diverged in the United Kingdom, Canada, Germany, Spain, and the euro area.

Homeownership is part of the “American Dream” and a key tool for households to build wealth. In the years since the recession, though, fewer Americans have bought homes and increasing house prices have made homeownership less attainable. What this means for the economy in the long term is unclear.

How this graph was created: From the FRED homepage, select “Browse data by…Category.” Then select “Housing” under “Production & Business Activity.” Find and select the quarterly seasonally adjusted “Homeownership Rate for the United States” series from the results. From the “Edit Graph” menu, select “Add Line” and search for “house price index.” Select the seasonally adjusted “S&P/Case-Shiller U.S. National Home Price Index” series from the results and click “Add data series.” Finally, in the “Format” tab, select “Right” for the y-axis position of Line 2.

Suggested by Daniel Eubanks, Pedro Gete, and Carlos Garriga.

View on FRED, series used in this post: CSUSHPISA, RSAHORUSQ156S

Timing the market for tax purposes

Realizing capital gains when tax rates are lower

If you’re a U.S. resident, you’ve probably already filled out your tax forms. (Unless you like procrastinating. In which case, you’ve got one month left.) FRED has plenty of data from the Internal Revenue Service that describe tax filings. Some series count the number of individuals filing and the amounts in various parts of their tax declarations. This graph shows the number of people declaring net capital gains. Clearly, the number decreased significantly when the stock market was doing poorly, but it was far from zero: The troughs were about half of the peaks. The reason is that only realized capital gains are taxed—that is, when a stock is sold. Even during the worst times, many of those selling their stocks were still realizing gains compared with the prices of the stocks when they originally bought them. And timing the sale of stocks may be to a taxpayer’s advantage if it allows him or her to benefit from lower marginal tax rates. Similarly, a prolonged stock market rally doesn’t necessarily translate into immediate additional capital gains…unless people sell their stocks during the rally. But periods of high income for taxpayers may not be the right time to sell stock if it pushes them into higher tax brackets.

How this graph was created: Search for “individual income tax filing” and click on the desired series.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: NCGAGI

From floor plans to roof tiles

The stages of putting up new houses for sale

FRED has a lot of data on the real estate market at the regional, national, and international levels; and this graph offers a sample. Here we examine the stage of construction for new houses for sale in the U.S. Indeed, you can buy a house while it’s still in the planning stage, while it’s being constructed, or after it’s completed. Generally, most new houses are put up for sale while construction is still going on. The business cycle can affect this timing, however, and there are a few perspectives to consider.

During a downturn, when houses are more difficult to sell, the stock of completed houses for sale can build up. Also, if prospects for selling a house worsen, a builder may delay construction until a sale is made, which would increase the stock of unstarted houses for sale. On the other hand, a builder may simply abandon the idea of new construction if there are too many finished houses already on the market, decreasing the stock of unstarted houses for sale. This last story seems to apply well to the recent past. In fact, during the previous recession, the number of unstarted houses decreased.

How this graph was created: Search for “new houses for sale by stage” and select the three series. Click on “Add to Graph.” From the “Edit Graph” section, open the “Format” panel to change the graph type to “Bar” with regular stacking.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: NHFSEPCS, NHFSEPNTS, NHFSEPUCS

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