US Housing Market - Doubly Expensive in Two Decades

The US housing market has been in the bubble territory again in the last few years since the pandemic. The rapid rise in price of home has been attributed to many  factors - very low interest rate,  population migration due to work from home (WFH)  benefit,  investor participation, federal government tax incentives. etc.

The following charts show  different aspects of the housing market.  The first chart shows average number of person per house or occupancy. That number went down from high of 2.42 in 2000 to 2.33 in 2008.  The 30 year mortgage  gradually went down from above 8 to less than 6 in 2008-09 and it kept  going lower after that till the beginning of 2022.  

From 2008 to 2017, the occupancy rate went up from 2.33 to 2.37.   This increase was likely due to lot of foreclosures during the aftermath of 2008 Great Recession. Then from 2017  onward the occupancy rate started going down again. This is likely due to continual decrease in mortgage rate to low territories that was never seen before. Higher occupancy rate results in less demand for housing. Conversely, lower occupancy rate increases housing demand.  

As population increases,  need for new housing increases. During the period 2000-22, population increased by about 2.3 million/year. During the same period housing increased  by about 1.17 million/year on average. However,   housing increased by 1.49 million/year  between 2000-2009. From 2010-2020 housing only increased by 0.89 million/year. During the same periods population increased by  2.46 million/year and  1.79 million/year respectively.   The trend  of occupancy going down probably reflects a long term trend of people wanting more first homes, second homes and beyond. Could also be due to people moving out of shared accommodation or a combination of both. The trend was shortly reversed right after the 2008-9  housing bubble crash. Homes beyond the first one can be considered part of the investor purchases.   The current estimate is that 20-25% of houses are purchased by investors, this apparently causes an increase in demand. 

There is clear strong connection between  median house price and the 30 year mortgage rate. As mortgage rate went from above 8.0 in 2000 to low of below 3  in 2021, the median price steadily increased from $163K in 2000 to $433K in 2022.  During the same period the median wage remained more or less same, hence affordability  (house price/wage) decreased from 2.49 times wage to 5.22 times wage.  Roughly, every percentage point increase in mortgage results in $33 K reduction in median price. 

Data Sources:

1. FED Housing data - https://fred.stlouisfed.org/categories/97
2. Median Sales Price of Houses Sold for the United States , https://fred.stlouisfed.org/series/MSPUS
3. 30-Year Fixed Rate Mortgage Average in the United States, ps://www.nar.realtor/research-and-statistics
4. U.S. existing home sales accelerate; investors elbowing out first-time buyers, https://www.reuters.com/business/us-existing-home-sales-surge-january-inventory-record-low-2022-02-18/
5. Wealthy Homebuyers Flash Cash as Mortgage Rates Climb, https://www.bloomberg.com/news/articles/2022-09-16/cash-offers-homebuyers-in-long-island-florida-skip-higher-mortgage-rates
6. How the ‘Rise of the Rest’ Became the ‘Rise of the Rents’, https://www.bloomberg.com/news/features/2022-09-08/why-did-housing-costs-explode-during-the-pandemic
7. Home-Flipper Opendoor Hit With Losses in Echo of Zillow Collaps. Company lost money on 42% of its August resales after it failed to anticipate slide in housing demand, https://www.bloomberg.com/news/articles/2022-09-19/home-flipper-opendoor-hit-with-losses-in-echo-of-zillow-collapse
8. US Demographics https://datacommons.org/place/country/USA?category=Demographics
9. US Housing https://datacommons.org/place/country/USA?category=Housing
10. https://ycharts.com/indicators/us_existing_home_sales_yearly
11. Average Sales Price of Houses Sold for the United States (ASPUS) https://fred.stlouisfed.org/series/ASPUS