Compiled with commentary by Edward J. Dodson, M.L.A. The State of the United States ECONOMY and SOCIETY Part 5 Compiled with commentary by Edward J. Dodson, M.L.A. January 2017

The ownership of a residential property was almost taken for granted by a majority of White Americans who reached adulthood in the 1950s, their children who entered the workforce in the 1970s, and even their grandchildren who came of age in the 1990s. The crash of the nation’s property markets in 2007-2008 has had long-lasting consequences, unevenly distributed across the United States. Property Ownership

Beginning in the1950s, millions of young adults left the nation’s cities to live in new suburban communities characterized by affordable, single-family detached housing on a small parcel of land.

From that time on, residential property markets have been a key driver of the U.S. economy. Consider the long list of participants in the “housing” sector, from land owners and building contractors, to the retail sellers of everything required to make a house a home, to landscaping services.

The darker side of our financial system is evidenced by the millions of households who since 2008 have lost the properties they lived in, sometimes for many years. During 2015 there were 575,378 foreclosures completed. While this is certainly a concern, between 2007 and 2014 the total number of foreclosures was 17,206,442. Prolonged loss of employment, divorce and serious illness are the primary causes. 5

Predatory lending practices and high-cost subprime mortgage terms victimized millions more. 6

The result is a drop in the rate of homeownership to 63.5 percent. 7

Of the total mortgage loans closed during August 2016, over half were defined as subprime or high risk. Nearly 90 percent of those insured by the Federal Housing Administration were subprime or high risk. [Source: Mary Salmonsen. “AEI: First-Time-Buyer Loan Volume Rose 14% YOY,” Builder, 30 November, 2016] 8

First-time-buyer volume rose 39% over the past two years, between August of 2014 and August of 2016.

The National Association of Realtors reported that in October of 2016 the annualized sales of existing properties rose to 5.6 million the highest level in nearly a decade. One-third of sales were to first-time buyers. The median price of houses sold in October was $232,200, a 6 percent increase over the previous October. [Source: “Existing-Home Sales Jump Again in October, National Association of Realtors, 22 November, 2016] 10

A few months earlier, National Association of Realtors chief economist Lawrence Yun has voiced his concern about the future of the residential property market: 11

“Looking ahead, it’s unclear if this current sales pace can further accelerate as record high stock prices, near-record low mortgage rates and solid job gains face off against a dearth of homes available for sale and lofty home prices that keep advancing.”  “Looking ahead, it’s unclear if this current sales pace can further accelerate as record high stock prices, near-record low mortgage rates and solid job gains face off against a dearth of homes available for sale and lofty home prices that keep advancing.” [Quoted in: “Existing-Home Sales Ascend Again in June, First-Time Buyers Provide Spark,” National Association of Realtors News Release, July 21, 2016] 12

What he does not say (perhaps because this is not a focus of his research) is that what is increasing is not house prices but the price of the land on which the housing unit sits. 13

The value of a house is its replacement cost, less what depreciation the house has experienced. This property in San Francisco was offered for sale at $595,000 earlier in 2016. I have not found out whether the property was sold. It might cost $10,000 to clear the site for new construction, which means the value of the land, if vacant, is $605,000. 14

And, here is one example of how San Francisco is trying to expand the supply of affordable housing by constructing really tiny houses. 15

The wealth effect of owning a residential property is significant The wealth effect of owning a residential property is significant. Based on property values as of 2013, less mortgage debt owed, the aggregate equity in residential properties had climbed back toward the 2008 peak, estimated to be $12 trillion. 16

Of course, property values have not recovered evenly across the United States since the 2008 fall. Rising property values have reduced the number of property owners with negative equity to 3.2 million, or 6.3% of all properties with mortgage debt. [Source: Kelsey Ramirez. “Homes with negative equity decrease more than 10%,” Housingwire, 9 December, 2016] 3.2 million 17

Property prices in some “hot markets” are once again rising at annual double-digit rates. The median property price in San Francisco has been stable for some months at just over $1.1 million. It takes about $200,000 down and a household income of $200,000 a year to buy a median priced home in the San Francisco metro area, which in a hot neighborhood might not be much more than 1,000 square feet. [Source: Zillow, 31 October, 2016] 18

Zillow reported at the end of October 2016 that the median residential property value in New York City was $614,200, although the median listing price of properties then for sale was $725,000. In Manhattan the median value was $1,352,800.

By comparison, the median property value in Philadelphia was $132,200 in October 2016. For the entire Metropolitan Statistical Area the median value was $213,400.

The median sales price of new houses sold in October 2016 was $304,500; the average sales price was $354,900. [Source: U.S. Census Bureau]

As population growth and new household formation has increased the demand for land and housing in many suburban regions, older existing houses are often purchased by developers who tear them down and build much larger homes, or obtain approval to subdivide the lot to construct more than one home.

Next we will examine the widening gaps in income and wealth.

End of Part 5