At Zillow Research, our days are fully consumed with bringing you the best, most interesting and most actionable real estate research around.
But to that end, we also find time to read a variety of reports, news stories and investigations, on any number of issues, from social justice, to economics, to real estate and sports. We read them for education, for entertainment and out of pure curiosity – and each one helps us discover new questions we want to answer and helps identify new trends worth following.
Zillow Reading List is a regular roundup of these interesting pieces we come across, with some thoughts about each and how it ties into our existing research and/or has spurred new questions. We’ll post these roundups regularly, and of course will continue to strive to publish research that is as enriching, thought-provoking and useful as these pieces have been to us.
Enjoy!
Brevan Howards: The Fed May Be Stoking another Housing Bubble
Jason Cummins in The Financial Times
English hedge fund Brevan Howards is provocatively arguing that the Federal Reserve may be running the risk of creating a new housing bubble by delaying their decision to raise interest rates. There is some evidence to support their contention. The pace of home price recovery from the bottom has been remarkably quick, and compared to fundamentals – notably, income – prices look quite high. But at the same time, mortgage payments relative to income actually look below long-term averages in most areas nationwide. Precisely because interest rates are so extraordinarily low compared to long-term averages, there is actually considerable room for them to move upwards before mortgage-to-income rates move above historical norms. Moreover, most Fed debates around when to raise rates are over a few months (“Should we raise rates in late 2015 or in early 2016?”). And while the last couple years have seen rapid home price appreciation, currently, U.S. home values aren’t appreciating fast enough for a few months to mean the difference between a crash and a smooth ride. The high end of the market, where the article focuses, might be a different story. But with so much demand in that segment coming from abroad and impacted by exchange rates, we tend to see the mainstream economy as relatively insulated from the whims of the global 1 percent.
Emily Badger in The Washington Post
In our last Reading List, we discussed a proposed moratorium on building market-rate housing in San Francisco’s Mission district. It is difficult to unpack the many distinct considerations surrounding an issue like gentrification, but this article tries. At the center of it all is the question of what exactly it is we are trying to preserve/ensure/maintain? Are we trying to maintain a sufficient number of affordable units for the long-time residents of the area, in which case new construction might help by meeting some of the demand for housing in the area? Or is the worry that an influx of new residents might destroy the very character of the area that drew them in the first place (reminiscent of the classic economic tragedy of the commons)? Either way, we have to define the problem we are trying to solve before we can make any progress towards a solution.
Where Will the Homeownership Rate Go?
Nick Timiraos in The Wall Street Journal
Homeownership rates have been declining steadily from the extraordinary highs hit at the top of the housing bubble. But is this decline a move back towards the long-term average, or, as many suspect, are we headed for a permanently lower homeownership rate? Some have pointed to the idea that the millennial generation being less enamored with homeownership (though our research suggests this is not the case) is a long-term driver of reduced homeownership rates. But the Urban Institute points to demographics as the source behind what they predict will be a 15-year decline in homeownership rates. A large majority of new households that will be formed over the next decade will be formed by minorities. And these minority groups, for now, have lower incomes, less wealth and lower homeownership rates than the U.S. average. This is certainly a headwind the housing market will have to face in the future, though hopefully the market can respond to the challenge of making homeownership accessible for all groups. The expansion of FICO and Vantage scores to populations which have traditionally faced barriers in getting credit, for example, could help ease their path to homeownership.
If you build it (and they can get there), they will come
Rental affordability is challenging in many metro areas, especially on the coasts and in California in particular. Within those metros, almost universally, the areas with the most challenging affordability problems are those with the highest demand. This article argues that demand will follow transit. By improving our transit system, we can spread that demand over more places and alleviate the current crunch for the most desirable areas with easy connectivity to the rest of the metro. It is a strategy we have always found compelling. Anyone evaluating a place to live should consider the cost of commuting in both time and money (stay tuned to this space for some upcoming research on this issue). A better transit system could reduce both of those costs – effectively making living in that location more affordable. Improving transit in a dense metro isn’t cheap, but neither are any of the other solutions being proposed to help ease our affordability crisis.
How Much Do Skyscrapers Actually Move
Emily Badger in Gizmodo
The science geek in us loved this explanation of how much skyscrapers actually move. Fun fact: the Zillow Tower actually sits on top of large rollers that allow it to move in case of an earthquake. We’re sure that’s supposed to be re-assuring, but it actually has the opposite effect.
