Housing-Urban-Labor-Macro (HULM) conference explores causes and consequences of the housing crisis

The University of Wisconsin-Madison has long been known as a leader in research, including cutting-edge explorations of housing and economic issues conducted by the UW-Madison real estate faculty. Compelling real-life problems challenge these leading academics to find unique solutions for improving our urban environment worldwide.

In March, the UW real estate faculty joined their peers in sharing the findings of their research at the sixth Housing-Urban-Labor-Macro (HULM) Conference, held at the Federal Reserve Bank of Boston. This biannual conference was first held in the fall of 2009 and is now well known for facilitating the presentation and discussion of some of the most impressive real estate and urban research conducted by leading academics from around the world.

"We organized the first HULM conference in an effort to create a new venue for the rapidly growing field of real estate research," says Professor and Graaskamp Center Academic Director Morris A. Davis. "Our partnerships with the Federal Reserve Banks in Atlanta, Chicago and St. Louis have helped us widen our audience and bring this research to the people who will benefit the most from it."

The spring 2012 HULM conference was organized by Professor Erwan Quintin, a former senior economist and policy advisor at the Federal Reserve Bank of Dallas. "A unique aspect of this event is the collaboration it fosters between academic researchers who study optimal policy responses to various real estate events and the very people who implement these policy responses," says Quintin. "This includes not only Federal Reserve economists but also researchers from government-sponsored agencies."

As has been the case for most HULM meetings to date, the causes and consequences of the foreclosure boom emerged as the dominant question at the Boston Fed event. Among other presenters, Kyle Herkenhoff discussed the effect of foreclosure delays on the length of unemployment spells, while Paul Willen proposed a new and improved way to measure the effect of foreclosed properties on the value of neighboring homes.

Stijn Van Nieuwerburgh, for his part, argued that the deterioration of underwriting standards is the most likely explanation for the recent boom-bust cycle in home prices. That presentation prompted a very lively debate on what caused this deterioration in the first place. Two possible explanations are a regulatory environment more tolerant of risky mortgages around the turn of the century and the effects of increased demand for the investment grade paper created via mortgage securitization.

Urban economics questions also received their fair share of attention, with several presentations devoted to explaining why observationally similar people tend to earn very different amounts in different cities. Gilles Duranton, for his part, discussed a new approach to measure the speed with which urban costs rise with city size.

At the end of the two-day conference, Quintin says he feels the goals of presentation and collaboration were well met.

"HULM is a unique opportunity for economists around the world who study real estate questions to exchange and debate ideas," Quintin says. "Research ideas are born or become more mature at HULM, new co-authorships are formed, and new policy proposals emerge." Davis echoes this sentiment, saying, "When you have 40 people in a room that are all experts, we are able to learn from listening to what people we don't typically interact with have to say."

The next installment of the conference will take place at the Federal Reserve Bank of Chicago on October 5-6, 2012.

Chart(s) of the Week: Housing Starts Redux

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

A few weeks ago, when I inaugurated Chart of the Week, we looked at U.S. housing starts using annual data from 1890 to 2010. There is usually more than one way to design a chart, especially for such a key data series. I promised then to do a follow-up with more about starts, and here we are. We’ll use this opportunity to highlight three important elements of charting data: (1) re-expression; (2) periodicity; and (3) seasonal adjustment.

First, re-expression. Two friends -- Nino Pedrelli and Ann Danner -- asked how the key chart would look if we made an adjustment for the changing size of the U.S. population. In 1890, US population was about 63 million; and with average household size of about five, we had about 13 million resident households. Today's population stands at about 310 million, or with a household size of 2.6, about 118 million households.

Let's look at the simple transformation of our annual housing data we presented two weeks ago. (Take a look at that chart first, to refresh your memory.)

Today’s first chart simply divides the annual number of total housing starts by the number of households in the U.S., represented by the thick blue line and the first y-axis. In the starts chart from our first posting, prewar housing starts of half a million to a million didn’t look terribly impressive compared to the postwar starts ranging between 1-2 million and above (until recently). But compared to the number of households, in today’s chart, we see that the 20s were a real boom and bust.


Part of the reason for the relatively high rate of starts many decades ago was higher population growth. Today’s Figure 1 also shows the annual rate of population growth, using the red line and the second y-axis. Pre-Depression U.S. population growth usually ran at 1½ to 2% per year, quite a bit higher than today's 1%. (Note also the decline in population growth during the Depression, and the big one-time shifts in resident population associated with movements to and from overseas during the World Wars). Other factors, not addressed directly in the chart, include changes in the rate of depreciation of typical units, rising incomes and concomitant demand for larger and better units, geographic mobility, and the fact that average household size was declining more rapidly a century ago than it’s declining today.

Next let’s look at the issues of periodicity and seasonal adjustment. Many basic real estate and economic indicators come with varying “time signatures,” e.g. annual, quarterly, monthly and so on. We looked at annual starts before partly because annual data are available for the longest time span, back to 1890. Monthly housing starts data for the U.S. are available after 1959. These are available both as seasonally adjusted, and unadjusted.

Figure 2 presents both these monthly series starting in 1987. We start in 1987 instead of 1959 here simply to allow the reader to see patterns within years more clearly.


Seasonal adjustment arises because when we look at one month (or quarter) of data and compare it to the previous period, we often wish to somehow account for regular and fairly predictable changes in certain months or quarters. For example, weather affects construction – more new houses are started in May than in January for obvious reasons (at least in Wisconsin).

Many time series, then come two ways – seasonally adjusted (often expressed at annual rates), or not seasonally adjusted. The seasonal pattern in Figure 2 is obvious, with unadjusted starts spiking in April or May of most years, hitting low points in December and January.


Figure 3 presents the seasonally adjusted data all the way back to 1959; and our final chart combines all three elements by presenting monthly housing starts per 1000 population.


Two key results are evident from Figure 4. First, we see a declining trend in starts per capita over the last 50 years; this trend remains even if we omit the last few years of data. Second, even after accounting for this trend, recent housing starts are the lowest that we've observed per capita since collection of the monthly data began in 1959.

Are interest rates low enough to get the housing market moving again?

Yesterday, Madison's Channel 3000 News interviewed Professor Stephen Malpezzi on the outlook on the housing market given historically low mortgage interest rates. (Homebuyers Take Advantage Of Low Mortgage Rates, Aug 19, 2011 - video embedded below)

While the added incentive will likely pickup the housing market, experts don't expect it to be enough to pull the U.S. out of its slump."Getting employment back up is going to have a lot to do with getting that housing market problem healed and getting us back on track," said Steve Malpezzi, a business professor at the University of Wisconsin-Madison.

Professor Morris A. Davis was interviewed on Wisconsin Public Radio on Monday (Mortgage Rates Drop, But Getting a Good Rate Can Be Tough, Aug 15, 2011 + audio): while mortgage rates have reached record lows,

Morris Davis, Associate Professor in the Department of Real Estate at UW-Madison's School of Business, says there's a catch, "It's harder to get a mortgage than it used to be. Underwriting standards are much more strict than they were just a few years ago."

However, (from Channel 3000)

What Malpezzi does caution against right now is flipping a home. He said home values are still fluctuating and could even dip, so it would be difficult to buy a home, fix it up and sell it for a profit within a couple of years.

Chart(s) of the Week

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

"Knowledge that is not quantifiable is of a meager and uninteresting kind."
Lord Kelvin

"Any figure that looks interesting is probably wrong."
Sir Claus Mosley, Presidential Address to the Royal Statistical Society

Today we start a new feature, the Chart (or charts!) of the Week.

My students and colleagues can confirm that I'm a numbers freak. I also like to provide students and colleagues with my constructive -- some might say annoying -- suggestions for improving their data presentation.

Recently I've been spending some time working on a new edition of A Primer on U.S. Housing Markets and Housing Policy, coauthored with my friend Richard Green (also impresario of Richard's Urban Blog). For the second edition, we're pleased that Paul Carrillo joins us as the third coauthor.

What better place to start than updating the iconic chart of U.S. housing starts back to 1890! To quote my fellow chart-freak H. Ross Perot, "I find this fascinatin'."



Imagine jumping into the TARDIS and returning to look at these data in, say, 1960. Analysts of the time could have quite reasonably thought of the postwar boom up to a level approximating 1-2 million starts per year as a temporary phenomenon, while the country caught up to the backlog from the 30s and 40s. It would have been a farsighted thinker indeed who would have foreseen how broad postwar increases in income, changes in building technology (think Levittowns and other innovations in development and construction) as well as the expansion of the availability of housing finance, along with the baby boom and other demographics would have lead to the higher, if very volatile, levels of housing starts for another five decades.

Let's dig a little deeper. Chart 1 has three lines: the red line shows private housing starts; the green line shows public housing starts; and the blue line shows manufactured housing placements. All three are in thousands of units started (or placed). We'll focus mostly on private starts at first.

Around the turn of the century -- pardon me, I'm an old person, around the turn of two centuries ago, 1900 -- housing starts were bumping along at around 300,000 units per year; around 1905 they bumped up to around 500K per year. Students of The Panic of 1907 will be interested to find that this financial crisis had minimal impact on housing starts, maybe partly because at the time few households took out mortgages, and those were usually for perhaps a third of the purchase price. Housing starts did start to fall a few years before the U.S. entered WWI; and the 1918 trough in starts, 118K, remains the record low for the 120 years of data we examine.

Post WWI, starts boomed, hitting a quite substantial peak of 937K in 1925. They started to slide well in advance of the stock market crash of 1929, and fell further during the early years of the Great Depression, bottoming at 134K in 1932. Slowly they climbed back during the rest of the 1930s. GDP and unemployment data from that period are subject to larger-than-usual errors, but taking data in hand at face value, after declining by perhaps 30 percent between 1930 and 1933, with a concomitant rise in unemployment to perhaps 36 percent (!), overall GDP clawed back half that loss from 1934 to 1937, while unemployment fell to maybe 20 percent. The economy then took a second hit in the double dip of 1938, with a 4 percent decline in GDP and a return to rising unemployment. Things began to get better the following year, but with continued weakness in employment (Sound familiar? Well, it was, but much worse!)

During the war years, 1941 to 1945, GDP rocketed up by perhaps 70 percent, and unemployment fell to under 2 percent, while housing starts plummeted, as the nation shifted production from housing and consumption goods into military necessities as the U.S. economy became, in President Roosevelt's words, "the arsenal of democracy." Starts hit a trough of 142K in 1944. Then bounced back a bit in 1945 (the war ended in August), and shot up to an unprecedented 2.3 million in 1950.

After that boom, we settled down, but to a much higher plateau of around 1.5M units per year in the 50s and 60s, with substantial swings: peak-to-trough, housing starts varied by a factor of 2 to 1 or sometimes a little more! Housing, as our friend Richard Green has documented more carefully, became the leading edge of many business cycles. (Follow the Leader: How Changes in Residential and Non‐residential Investment Predict Changes in GDP, Real Estate Economics, 1997). Private starts hit their all-time high in 1972, with 2.4 million units underway.

U.S. housing starts took a big hit during the post-S&L boom recession at the start of the 90s; starts hit a low point of about a million in 1991. They then started a long, fairly steady climb back to a peak of 2.1M in 2005. They started to fall in advance of the 2007 Great Recession, plummeting to below 600K in 2009 and 2010. Ouch! These are the lowest levels of housing starts since 1945.

What about public housing starts? These have always been a small part of the market, albeit one that is an important concern of HUD, taxpayers, and of course the families that live in those units. Public housing starts rose during the later years of the Great Depression, maxing out at 87K in 1941. Along with other housing starts, they collapsed during WWII, bouncing back to 71K in 1951, bumping around at 50K or less for most of the 60s and some of the 70s. They declined to nearly nothing in the 70s as the U.S. shifted from "supply side" subsidies to "demand side" housing subsidies, with the creation of Section 8 Certificates, the precursor to today's housing vouchers. You can read more about those policy shifts in the Primer. We haven't built any public housing to speak of in over three decades, but of course we still have a stock that requires management. All in, public housing itself peaked at under 2 million units three decades ago, and now stands at about a million units, or roughly 1 percent of the U.S. housing stock.

Manufactured housing as an industry came into its own in the 60s, peaking at 576,000 placements in 1972 (the same year as the peak year in housing starts; all in, about 3 million units started). For much of the next two decades placements bumped along near 200K, not at all negligible; they hit their second peak of 354K in 1998, then slid; the slide accelerated with the collapse of the housing market in the Great Recession, to a low of around 50K in 2010.

Quite a story, and still not all there is to say about housing starts. In future posts we'll examine monthly data, talk about seasonal adjustment, and relate starts to some basic demographics and other determinants. But for now, contemplate 120 years of housing starts.

What will the next decade, and century, bring?

Local concerns over housing prices affected by national outlook (video)

UW Real Estate Professor Morris A. Davis was interviewed yesterday for a story on local concerns about trends in housing prices. Here is the video (via Channel 3000):

The state of the housing market

"There are signs that the two-year drop in Wisconsin home prices had bottomed out, at least in some regions of the state."

That was one of the takeaways from yesterday's Newsmakers interview on the WisconsinEye Network with Stephen Malpezzi, professor with Wisconsin's Real Estate Program and recognized expert on housing and urban development, and Bill Malkasian, president of the Wisconsin Realtors Association. They also discussed current housing inventory and the advantages offered by continued low interest rates to potential home buyers. Visit WisEye.org to watch video of the interview.

Malpezzi also joined a panel last Thursday on KUOW Puget Sound Public Radio to discuss the role of government in the housing market. He, along with European real estate expert Dr. Joaquin Jorge Piserra Ribera and Vancouver Sun Editor Fiona Anderson, tackled questions including: Should the United States change the way it finances real estate? How do other countries do it? Would changing the government's role in the housing market affect the way we think about houses? Visit KUOW.org to listen to audio of the broadcast.

The housing market and the regional economic outlook will be central topics at the Graaskamp Center's annual June conference.

The 2011 Wisconsin Real Estate and Economic Outlook Conference on June 9th in Madison will feature keynote presentations from Elizabeth Warren, Consumer Financial Protection Bureau, and Governor Scott Walker.

This conference will explore how the new regulatory landscape will affect the size and scope of activity in the real estate and financial services industries. How will the new Bureau of Consumer Financial Protection affect how real estate and finance professionals do transactions? How will new rules support buyers and sellers, lenders and borrowers? How will the proposed replacement of Fannie and Freddie affect the cost of and access to mortgage credit, and what might the secondary mortgage market of the future look like? Join this important conversation. Click to view the agenda and to register.

Home-Price Outlook for the Year

The Wall Street Journal today published the results of a survey of economists and housing analysts conducted earlier this month by MacroMarkets. Among those surveyed was Abdullah Yavas, professor of real estate and urban land economics at the Wisconsin School of Business.

The quarterly survey shows how attitudes for a housing recovery have soured: Last June, economists expected prices would gain by 1.3% this year. “The sentiment among our expert panel regarding the U.S. housing market outlook continues to deteriorate,” said Robert Shiller, the Yale University housing economist who co-founded MacroMarkets.

Around one-third of panelists expect home prices to increase in 2011. Bill Cheney, chief economist of John Hancock Financial, and Abdullah Yavas, and professor of real estate at the University of Wisconsin, are calling for a 3% annual gain.

"No Home-Price Recovery This Year," WSJ, 3/22/11

Meaningful response to the global housing shortage

Reporting from MIPIM 2011 Day 3: "Participating in a Meaningful Response to the Global Housing Shortage."

We hear quite a bit these days about the moribund recovery in the U.S. housing market. There is often talk of oversupply and lack of demand for houses on the market. Yet globally, there is immense demand for even the most basic of housing. Global Housing Foundation (GHF) is a U.N. partner working to fill this need for basic housing around the world. Today at MIPIM, GHF sponsored a panel of industry players who are currently developing in markets that are perhaps a bit beyond the eye of the average institutional investor.

The biggest challenges to addressing the need better housing around the world, however, are lack of capital and the unwillingness of large capital sources to get involved in the markets where need is greatest. Some of that is due to issues around getting clean title to land (which is a dealbreaker), but oftentimes it is a simple belief that projects won't be successful. But it can be done, by building communities not just houses. And even though residents are poor, creating product that improves their lives that gets residents investing for the future.

Our coverage of MIPIM wraps up tomorrow with the "wrap-up keynote" presentation by Prof. François Ortalo-Magné and Philippe Tannebaum with IEIF on Friday.

Real Estate Research Spans Our Campus

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

One of the defining characteristics of the University of Wisconsin is the breadth of scholarship and teaching across the campus. For example, we teach more foreign languages (more than 80!) than any other university in the world. In previous posts, we talked about the new Discovery Institutes, a public-private partnership that brings together researchers from across campus to work on a range of problems such as epigenetics (how genes are activated or inactivated), tissue engineering (using artificial structures called “scaffolds” to grow cells into substitutes for biological material – maybe that piece of my knee I lost in a long-ago basketball game), improvements in therapeutic technologies, the application of recent advances in the mathematics of optimization to biology and medicine, and a broad look at the “systems level” of biological organisms.

The Graaskamp Center and its associated faculty are in the thick of intellectual ferment in our field, both inside and outside the University. Within UW, our faculty have their academic homes in the Wisconsin School of Business, but our faculty also have formal affiliations with other UW organizations, including Economics, Urban and Regional Planning, the Institute for Research on Poverty, World Affairs and the Global Economy (WAGE), and the Law School, to name a few. In turn, selected faculty from these and other units serve as Faculty Fellows of the Graaskamp Center. Among their many contributions, these colleagues often speak at our events such as the twice-annual meetings of our Board of Advisors and the Wisconsin Real Estate and Economic Outlook Conference.

We’re very fortunate that we can also leverage off each other’s research. Some years ago, Richard Green (then on our faculty) and Michelle White wrote an influential paper “Measuring the Benefits of Homeownership: Effects on Children,” that kicked off a renewed interest among housing economists in the connections between housing markets and social outcomes. More recently, housing economists in the Graaskamp Center have been focused on the connections between unemployment and the economic well-being of families, and our recent problems in the housing market, for example the development of the Wisconsin Foreclosure and Unemployment Relief Plan (WI-FUR).

Thus, we’re very pleased to see a new Wisconsin research initiative on the connections between housing and the long-term health and well-being of children, families and communities from our colleagues at the Institute for Research on Poverty:

FOUNDATION FUNDS HOUSING RESEARCH OF THREE UW-MADISON FACULTY MEMBERS

Three researchers with the Institute for Research on Poverty at the University of Wisconsin-Madison Timothy Smeeding, Lawrence Berger and J. Michael Collins, have received support from the John D. and Catherine T. MacArthur Foundation to explore the role housing plays in the long-term health and well-being of children, families and communities.

Their main thesis is that income benefit policies are also housing stability policies that help families maintain payments for mortgages and rent and therefore avoid forced housing changes. The goal of their research is to identify the most effective policies for avoiding the negative impacts of housing changes on family well-being.

We’re looking forward to learning from this research as it comes online. Read the full press release from UW-Madison News.