Thursday, March 12, 2009

Additional observations on foreclosures

In a recent post, Steve Sailer reacts to a treasure trove of a report on foreclosure statistics out of the University of Virginia. There are a couple of observations that might be of interest in addition to the content of Steve's enlightening (as always) article.

1) The minority recession (and potential depression) is aptly named. But there is also an age element in play. The decadal average home ownership rate, measured by household, from 1994-2003 for the nation as a whole was 66.4%. During 2005-2007, the two year period preceeding the floor falling out, it had grown to 68.6%. The increase in ownership disproportionately came from people in their twenties and early thirties.

Young adults, with relatively low incomes and little affluence 'benefitted' most from lax lending standards, specifically the removal of the down payment "obstacle". The following table shows the rate of increase and the absolute percentage point increase in home ownership by age group from the '93-'04 period to the '05-'07 period:

AgeGrowth ratePoint rise
18-2429.4%5.7
25-2912.3%4.5
30-343.7%2.0
35-442.8%1.9
45-540.1%0.1
55-640.5%0.4
65+1.4%1.1

Perversely, the baby boomers (aged 45-64), whose future quality of life has been most drastically downgraded by the stock market being chopped in half, were responsible for almost none of the mortgage rate increase. Homeownership rates for these 80 million or so Americans have remained essentially unchanged for twenty years.

But hell, they did start this fire, and their generation's Presidents did not try to fight anything but the prudent, time-tested loan application evaluation measures meant to prevent profligate lending in the first place. Instead, they fanned the flames. So I guess it's a sort of sick karmic justice being served.

2) When the slew of alternative documentation (Alt-A) and option adjustable rate mortgages (option ARMs) that will be readjusting over the next few years cause more housing-related hell, red staters are going to continue to feel less hurt than blue staters will. If recession or stagnation lingers on beyond then, the story will stay the same.

This is because the ratios of housing values to median income in blue states are higher than they are in red states. The inverse correlation between median income as a percentage of housing values during 2007 and McCain's share of the '08 vote is a startling .64 (p=0). In states that voted for Obama in '08, the average (with population weighting) median home valuation in 2007 was 4.4 times median household income. In McCain states, the ratio was a more manageable 2.5.

Consider what that looks like in reality. In Blue State, a couple earning $80,000 a year has a $352,000 mortgage. In Red State, the mortgage is only $200,000 for a couple earning the same $80,000. And that is before taking the higher levels of taxation in blue states into account.

That home values are just a fraction of what they were when so many mortgages were taken out is where so much of the trouble comes in. It is in places where home values increased most rapidly that the bubble's bursting has put mortgage holders the farthest underwater.

Here again, blue states are taking a harder fall than red states are, because skyrocketing real estate prices are a tale of blue cities. The correlation between McCain's share of the vote and the increase in valuation of a state's median home from 2000 to 2007 is an inverse .60 (p=0). In blue states, housing valuations increased by an average of 86% over the seven year period, or 9.3% a year. In red states, they increased by 40% during the same time, for an annual average of 4.9%.

What went up has been necessarily coming down, as there was no accompanying increase in real wealth to justify the valuation increases.

3) That provides a nice segue into one final observation. Median housing prices and median incomes should grow at the same rates. If the former grows faster, a bubble is being created. From 2000 to 2007, median income in the US grew at a rate of 2.2% a year. Over the same period, the median value of homes increased nearly three times as rapidly, at an annual rate of 6.4%. That spells trouble down the road.

Hopefully a tight-fisted Republican resurgence, devoid of any emphasis on foreign military adventures, will come out of this. Conservatives should contrast the inanity of double-digit increases in real estate values and the alarming growth in government spending that accompanies it, founded on nothing more than easy money and growth in unskilled immigration, with a sober, disciplined approach to life to be emphasized at every level of society, that is predicated on the expectation that it is each citizen's responsibility (and a prerequisite to becoming a citizen in the first place) to live within his means and to produce more than he consumes.

12 comments:

Stopped Clock said...

typos: decadal, not *decadel. segue, not *seque.

And a question: Are property taxes in blue states really higher? I don't know where to look up property tax rates, and I suspect they vary by town and it would be a lot of work to build a graph, but I did look up state-level income tax rates once and found that red states on average are only very slightly lower than bleu states, and that there's a lot of overlap, despite the popular conception among many people that red states would have lower taxes because that's how it tends to work at the federal level.

Stopped Clock said...

Oh the irony of making a typo in a post where I corrected two typos.

Anonymous said...

i have an uncle that i can recall making only one racial statement in my life and that was porperty taxes were high in the rather upscale community he had moved into a couple years before to keep things nice and segregated. this is in a northern bluestate.i wonder how many other people have a certain pragmatism about property taxes.

Jokah Macpherson said...

I grew up in Alabama. It is just about the reddest of the red states (crimson really) and has close to the lowest property tax rates in the nation.

Anonymous said...

---i wonder how many other people have a certain pragmatism about property taxes.---


Quite a few. Kind of like school choice...

Audacious Epigone said...

SC,

Per capita state tax collections correlate inversely with McCain's share of the vote at .53 (p=0), but that's without taking local taxes into account, or adjusting for income, which nominally tends to be higher in blue states.

The Tax Foundation puts out annual rankings that are said to combine state and local taxes (sales, income, property, etc) to compute comparable state rates (rather than less useful nominal collection totals). The TF's '08 rates correlate inversely with McCain's share of the vote at .43 (p=.002). So it looks like blue states do tend to have higher tax burdens than red states do, although the range isn't huge: Alaska is listed as the lowest at 6.4%, New Jersey the highest at 11.8%.

Audacious Epigone said...

Anon,

I live in the Kansas City metro area, and that is a 'secretive' reason people want to live on the Kansas side (specifically in Johnson County) of the metro if they are able to--the property taxes on comparable homes are twice what they are in Missouri.

The Undiscovered Jew said...

AE,

Socially liberal/fiscally center right whites in New Jersey may be returning to the GOP fold as the Democrats threaten tax increases in an already high cost of living state:

http://www.rasmussenreports.com/public_content/politics/election_2009/new_jersey/election_2009_new_jersey_governor

Stopped Clock said...

Ah thank you for reminding me of the existence of that page. I'll bookmark it, as the site I went to in order to decide whether blue states had higher taxes or not was more cumbersome and less numbersome. Thank you also for doing the calculation for me. I won't hold on to that misconception any longer.

It is interesting that Alaska dropped from 2nd to 50th in just a few years and hasn't moved from there since.

Steve Sailer said...

"Oh the irony of making a typo in a post where I corrected two typos."

Perhaps there should be a comma after "oh?"

That's what I found when trying to proofread my book: for every three typos you fix, the fixing process itself adds another one, and it's much worse if you try to make stylistic changes simultaneously.

Audacious Epigone said...

Steve,

Obviously the process of writing a book is an experience only a few people can claim, but I find I'm a less effective proofer of what I've written than what others have, probably because I tend to quickly settle into the complacency of my own voice and consequently begin skimming what I should be paying close attention to.

Audacious Epigone said...

UJ,

Interesting. Even whiterpeople are getting hit in the mouth. A decade of malaise forces concerns about moral positioning to the backseat.