Is Your Apartment Breaking because Your Landlord Is Broke?
Thirty-one percent of housing units in the United States are rental units, and rental housing is unique because unlike in the case of homeownership, renters rely on the property owner for maintenance spending. From the property owner’s perspective, building maintenance is an important investment necessary to keep the asset in good condition. However, like all investments, it is only possible to maintain a building with sufficient financial resources. In a recent staff report, I examine the relationship between a building’s financing constraints and its maintenance. I find that financially constrained buildings, colloquially “broke,” tend to be less well maintained.
The Layers of Inflation Persistence
In a recent post, we introduced the Multivariate Core Trend (MCT), a measure of inflation persistence in the core sectors of the personal consumption expenditure (PCE) price index. With data up to February 2022, we used the MCT to interpret the nature of post-pandemic price spikes, arguing that inflation dynamics were dominated by a persistent component largely common across sectors, which we estimated at around 5 percent. Indeed, over the year, inflation proved to be persistent and broad based, and core PCE inflation is likely to end 2022 near 5 percent. So, what is the MCT telling us today? In this post, we extend our analysis to data through November 2022 and detect signs of a decline in the persistent component of inflation in recent data. We then dissect the layers of inflation persistence to fully understand that decline.
A Look at the New York-Northern New Jersey Region’s Pandemic Housing Boom
Since the start of the pandemic, home prices in the U.S. have increased by an astonishing 40 percent. The New York-Northern New Jersey region saw a similar meteoric rise, as home prices shot up by 30 percent or more almost everywhere—even in upstate New York, where economic growth was sluggish well before the pandemic hit. New York City is the exception, where home price growth was less than half that pace. Indeed, home prices actually declined in Manhattan early in the pandemic, though they have rebounded markedly since. Much of the region’s home price boom can be traced to the rise in remote work, which increased the already strong demand for housing at a time when housing inventories were low and declining. Home price increases have largely outpaced income gains through the pandemic boom, resulting in a reduction in housing affordability in the region. However, with mortgage rates rising, it appears that the region’s housing boom is waning, as it is for the nation as a whole, with prices leveling off, though the inventory of available homes remains historically low.
New SCE Charts Include a Measure of Longer-Term Inflation Expectations
Today, the New York Fed introduces several new data series and interactive charts depicting findings from its Survey of Consumer Expectations (SCE). The SCE is a representative, internet-based monthly survey of a rotating panel of about 1,300 household heads in the United States. Since January 2014, we have been reporting findings from our monthly survey on U.S. households’ views on inflation, household income and spending growth, their expectations about the housing and labor market, and a range of other expectations about the economy and outcomes for their own household. In addition to publishing interactive charts showing national trends as well as trends by demographic groups (such as age, income, education, numeracy, and geography), we also post the underlying microdata online (with a nine-month lag) to make it available for research purposes. We are adding three new data series to our interactive charts today. The first two concern expectations about future inflation, and the third concerns expectations of future home price growth.
Eviction Expectations in the Post-Pandemic Housing Market
Housing is the single largest element of the typical household’s budget, and data from the SCE Household Spending Survey show that this is especially true for renters. As the housing market heated up in the latter stages of the pandemic, home prices and rents both began to rise sharply. For renters, some protection from these increases was afforded by national, state, and in some cases local eviction moratoria, which greatly reduced the risk of households losing access to stable housing if they couldn’t afford their rent. Yet many of these protections have expired and additional supports will do so soon. In this post, we draw on data from our SCE Housing Survey to explore how renters perceive their housing risk and find that the answers depend to a large degree on their current and past experiences of the housing market.
First-Time Buyers Were Undeterred by Rapid Home Price Appreciation in 2021
Tight inventories of homes for sale combined with strong demand pushed up national house prices by an eye-popping 19 percent, year over year, in January 2022. This surge in house prices created concerns that first-time buyers would increasingly be priced out of owning a home. However, using our Consumer Credit Panel, which is based on anonymized Equifax credit report data, we find that the share of purchase mortgages going to first-time buyers actually increased slightly from 2020 to 2021.
Expected Home Price Increases Accelerate over the Short Term but Remain Stable over the Medium Term
The Federal Reserve Bank of New York’s 2022 SCE Housing Survey shows that expected changes in home prices in the year ahead increased relative to the corresponding timeframe in the February 2021 survey, while five-year expectations remained unchanged. Households reported that they would be less likely to buy if they were to move compared to the year-ago survey, marking the first annual decline since the series began in 2014. This drop was driven by current renters, who were much less likely to buy compared to renters in the 2021 survey. Renters also reported that they expect rents to be sharply higher twelve months from now, with the expected rate of increase more than twice that reported a year ago. The expected price of rent five years ahead also rose compared to expectations a year ago, but at a more moderate pace.
Housing Returns in Big and Small Cities
Houses are the largest asset for most households in the United States, as is the case in many other countries as well. Within countries, there is substantial regional variation in house prices—compare real estate values in Manhattan, New York City, with those in Manhattan, Kansas, for example. But what about returns on investment? Are long-run returns on real estate investment—the sum of price appreciation and rental income flows—higher in superstar cities like New York than in the rest of the country? In this blog post, we present new and potentially surprising insights from research comparing long-run returns on residential real estate in a nation’s largest cities to those experienced in the rest of the country (Amaral et al., 2021), covering the U.S. and fourteen other advanced economies over the past century.
If Prices Fall, Mortgage Foreclosures Will Rise
In our previous post, we illustrated the recent extraordinarily strong growth in home prices and explored some of its key spatial patterns. Such price increases remind many of the first decade of the 2000s when home prices reversed, contributing to a broad housing market collapse that led to a wave of foreclosures, a financial crisis, and a prolonged recession. This post explores the risk that such an event could recur if home prices go into reverse now. We find that although the situation looks superficially similar to the brink of the last crisis, there are important differences that are likely to mitigate the risks emanating from the housing sector.
Does the Rise in Housing Prices Suggest a Housing Bubble?
House prices have risen rapidly during the pandemic, increasing even faster than the pace set before the 2007 financial crisis and subsequent recession. Is there a risk that another dangerous housing bubble is developing? This is a complicated question, and the answer has many components. This post, the first of two, provides a more detailed look at the recent rise in home prices by breaking it down geographically, with a comparison to the pre-2007 bubble. The second post looks at the potential risks to financial stability by comparing the currently outstanding stock of mortgage debt to the period before the financial crisis and projecting defaults should prices decline.