Demand Institute and A Tale of Two Cities
A Tale of Two Cities published by the Demand Institute offers some insights into the distribution of housing wealth in the United States:
It is all too easy when discussing the U.S. economic outlook to forget that it aggregates the economic prospects of thousands of different cities, towns, and villages across the nation. National statistics typically mask this local, and indeed more human, view of the country’s many distinct communities.
…
HOUSING is often the single most valuable and visible asset for U.S. households — and provides an incredibly powerful and accurate lens through which to assess the state of American communities. A LARGE PROPORTION OF HOUSING WEALTH is concentrated in a relatively small proportion of America’s cities and towns. Of the 2,200 we analyzed, the top 10 percent ranked by the aggregate value of their owner-occupied homes held 52 percent ($4.4 trillion) of the total housing wealth. The bottom 40 percent held just 8 percent ($700 billion).
This is a striking discovery, emphasizing the concentration of wealth and income in a relatively small number of large cities and towns. I haven’t had time to go through the document.
The U.S. is a most diverse and fragmented society. There has been tremendous U.S. upward mobility and increases in absolute living standards.
Millions of Third World immigrants moved to the U.S., and had millions of children, to raise their living standards. Many of those immigrants, who earned less than $3 a day or didn’t have jobs in their countries, earn $30,000 to $50,000 a year with overtime in the U.S. Major U.S. cities would’ve become ghost towns without Third World immigrants.
Almost the entire overextended U.S. housing boom took place in upper and middle class neighborhoods, which expanded and new neighborhoods were created.
1900 To 2010: Evolution Of The American Home Today: Fun Housing Facts.
June 18, 2000
“In 1900, for instance, a typical American new home contained 700 to 1,200 square feet of living space, including two or three bedrooms and one or (just about as likely) no bathrooms.
At the turn of the 20th Century, more than 20 percent of the U.S. population lived in crowded units, with entire families often sharing one or two rooms. Most homes were small, rural farmhouses and lacked many basic amenities, complete plumbing and central heating chief among them.
By 1950, the typical new home had not grown at all, averaging about 1,000 square feet. It still had just two bedrooms and one bath…50 years ago, more than 35 percent of American homes still lacked complete plumbing facilities (hot and cold piped water, a bathtub or shower and a flush toilet).
By 2000, a typical new home had 2,000 or more square feet, three or more bedrooms and at least 2 1/2 baths. We added the garage as standard, and expanded it to make room for at least 2 1/2 cars. Fireplaces and central air conditioning were built into almost every new house.
While only 46.5 percent of the U.S. population owned its own house in 1900 and 53 percent in 1950, it is estimated that at the end of this year more than 67 percent of American households will own.”
PT:
You keep flapping your lips PT with you made up stats.
In 2014, Zillow predicts, homeownership rates will fall below 65 percent for the first time since 1995. “The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households – seven out of ten – in a home, if only temporarily,” says Humphries. “That homeownership level proved unsustainable and during the housing recession and recovery the homeownership rate has floated back down to a more normal level, and we expect it to break 65% for the first time since the mid-1990s.” Watch also for adult children to move out of their parents’ homes, starting their own households and further decreasing the overall homeownership rate http://www.forbes.com/sites/erincarlyle/2013/12/23/housing-outlook-2014-10-predictions-from-the-experts/
Could it be because median household income stagnated since 2000?
PT: There has been tremendous U.S. upward mobility and increases in absolute living standards.
Yeah, there “has been”, but there hasn’t been is a very long time.
This report seems to be one of those “Dah!” reports. I mean what should we have expected when it takes money to make money and accumulated wealth to accumulate wealth? Just nice to see we are a consistent nation in how we have restructured our economy.
While new immigrants from dirt poor countries raised their living standards moving to the U.S., the native U.S. population also raised their living standards:
Rising riches: 1 in 5 in U.S. reaches affluence
December 6, 2013
“New research suggests that affluent Americans are more numerous than government data depict, encompassing 21% of working-age adults for at least a year by the time they turn 60. That proportion has more than doubled since 1979.
Sometimes referred to by marketers as the “mass affluent,” the new rich make up roughly 25 million U.S. households and account for nearly 40% of total U.S. consumer spending.
In 2012, the top 20% of U.S. households took home a record 51% of the nation’s income. The median income of this group is more than $150,000.”
run75441, I see, when you’re not being a political hack, you’re being ignorant.
You’re responding to an article dated in 2000 with a December 2013 article.
Chart of Home Ownerhip Rate:
http://research.stlouisfed.org/fred2/series/USHOWN
And, let’s look at real median income. Chart:
http://research.stlouisfed.org/fred2/graph/?id=MEHOINUSA672N
Real median income doesn’t rise steadily over time. There was a steep rise over five years in the 1990s, including when actual output exceeded potential output, when the Baby Boomers were at their prime, rising from $49,000 to $56,000.
However, it generally maintained that steep 1990s rise, falling to $54,000 and almost rising to $56,000 again in 2007.
It has declined from about $56,000 in 2007 to $51,000 today, over this recoverless expansion.
Moreover, I explained, more than once before to you, U.S. trade deficits continued to increase in the 2002-07 expansion, which subtracts from income = GDP = output.
And, since you want to be political, when Clinton left office, real median household income was a little over $54,500 and falling. When Bush took over, it fell only to $54,000 and then rose to $55,500 on top of the huge 1990s boom and increasingly larger 2000s trade deficits.
In the late 1980s, you could buy a mansion in Denver for $50,000, and there were lots of “For Rent” signs in front of apartments in nice neighborhoods. You could rent a spacious one-bedroom apartment with wooden floors and a view of the mountains for less than $300 a month.
Then, beginning in the early-1990s, many people moved to Colorado, e.g. from California. The “For Rent” signs disappeared and rents gradually rose (to over $400 a month by 2000).
The Denver Tech Center, about 20 miles south of downtown Denver, expanded quickly with dozens of new office buildings. There was a homebuilding boom, in the area, and many impressive shopping malls were built. These were “upper-middle” class houses built on empty fields.
Thousands of these large houses were built over many miles all the way towards the mountains in the west and towards Castle Rock in the south.
In Downtown Denver, government and business, and Democrats and Republicans, worked well together. There was little hostility (e.g. compared to California). Consequently, in the 1990s, there was a building boom in and around downtown Denver too, e.g. a new international airport, three new pro sports stadiums, a light rail system, a new convention center, and main library (where the G-8 meeting was held one year). Lower downtown was renovated to look like the 1920s when it was new, sidewalks were replaced, etc..
I don’t get the point PT….some are better off, some are not, and the US is wealthy compared to most countries. What is your point??? It is unclear to me.
I don’t get the point PT….some are better off, some are not, and the US is wealthy compared to most countries. What is your point??? It is unclear to me.
The article says: “…the top 10 percent ranked by the aggregate value of their owner-occupied homes held 52 percent ($4.4 trillion) of the total housing wealth. The bottom 40 percent held just 8 percent ($700 billion).”
I suspect, older Americans have much more wealth than younger Americans, in part, because they paid-down mortgage debt to build-up equity.
My parents are generally “middle class.” However, they bought a house in the late-1970s for $100,000. It rose to over $900,000 by the mid-2000s and then fell to roughly $700,000. They paid-off the 30-year loan. So, they have $700,000 in housing equity, along with other wealth built-up over decades.
I suspect, they’re in the top 10% of “owner-occupied housing wealth.”
Other Americans, including the “middle class” who bought homes eventually extracted equity and spent it, while other Americans defaulted on their home loans and find it difficult to get another loan. Moreover, many others traded-up for better homes (e.g. after selling a “starter home”) and have less equity.
Savers should be rewarded, particularly in an era of overconsumption, over the past 30 years.
Actually, during the housing boom, many homeowners extracted equity and refinanced at lower rates, more than once, which spurred consumption.
I read several years ago, U.S. homeowners were improving the real value of their homes spending over $300 billion a year in home improvements.
The U.S. not only had a housing boom, raising the homeownership rate, it had a homebuilding boom, home improvement boom, refinancing boom, and a general consumption boom, particularly as low prices (for goods & services) and low interest rates induced demand.
Y’know Peak, you are so fos.
Every now and then you actually link to something, and generally it does not reinforce your thoughts. Mostly, you just say things without a link to where it comes from, and expect people to just take your views as facts.
But then you come up with the home ownership story of your parents and you go off the reservation. Middle class? Your parents income had to be at least twice median income in the late 70’s. Their down payment to get to that figure had to be at least 133% of one year’s median income to get to that number. And your appreciation level on that house would need to be roughly twice what Case-Shiller’s existing home appreciation has been to get to your number.
And then of course the constant refusal of people without a clue that take the sale price and the current value and figure out their “wealth accumulation” to do the math.
Always looks great when you only pay attention to the P in Piti. Just forget the $130,000 of interest paid. Or add in the taxes. Or add in the insurance. Or add in the upkeep.
Your parents hit the American Dream lottery. But they were not middle class. They lived in an area almost unmatched in appreciation over the last 35 years. And they have a son who doesn’t do math that well or does not want to.
EMichael, as always, you don’t know what you’re talking about and always miss the point, e.g. savers accumulate wealth and spenders don’t. Of course, you wouldn’t understand a intertemporal model, for example.
My parents live in Orange County California and my dad is a civil engineer. I wouldn’t say they were rich. It’s much more accurate to say they were middle class, particularly in Orange County California.
If my links don’t support my statements, why don’t you explain why they don’t rather than just make declarations, which have so far made no sense.
Here’s a house price index chart for all of California:
http://research.stlouisfed.org/fred2/series/CASTHPI
“Not rich” is not middle class.
Just like Orange County is not the US.
Spare me the “savers” thing. Savers make more money than non savers, as opposed to the implied ideology that non-savers waste their money on $150 sneakers and cell phones.
Just like your first post has no link attached, and has such an inane statement as “While only 46.5 percent of the U.S. population owned its own house in 1900 and 53 percent in 1950, it is estimated that at the end of this year more than 67 percent of American households will own.”
Geez, let me think. What did people do for a living in 1900 that they did not do in 1950, and that less did now?
Cherry pickin bs used to “prove” an outdated, false ideology.
C’mon, Peak.
I did not dispute the value of their house. I disputed the middle class thing and the implied $600,000 of savings bs.
Amazing you use Orange County as some baseline to disprove the study when Orange County proves the study.
BTW, even with mortgage rates at around 5%, a “middle class” family would need a $140,000 down payment and income of at least $130,000 a year to buy your parents home. And we will forget about Prop 13 and its effects, both on your parents( and their savings) and the new buyers(and their costs).
Thinking out loud here:
If my house in Michigan were to be moved to parts of California, the market value would increase at least 800%. The house would appear much different in the stats.
So do we measure the wealth by the dollars or by the economic utility?
We have a large comfortable house on an over-sized lot in a nice neighborhood in a town where there are no commutes more than 10 minutes. Goods and services are very reasonably priced.
So if I had a 1M house in CA with an 600,000 mortgage, higher costs of goods and services and a longer commute, would I be wealthier?
Just wondering…..
Hi rusty,
Thanks for the wondering. The study does include the caveats you imply I bet. Page 11 gives a summary. And of course circumstances vary for individuals and communities. The report attempts to describe communities.
PT,
It would be nice if you glanced at the report. You use a lot of real estate to broadcast your dearly held beliefs. Please refer to the study itself…and provide links more germane to the topic. Please do your thing with fewer comments.
Seems to me
“…the top 10 percent ranked by the aggregate value of their owner-occupied homes held 52 percent ($4.4 trillion) of the total housing wealth. The bottom 40 percent held just 8 percent ($700 billion)”
is the same thing as saying
“People who live in expensive houses are rich.”
What am I missing? Are the 6 numbers in that paragraph the problem, and if so what should they be?
Hi Larry,
The study was descriptive, and mainly concerned that stories can be widely different. I did not include a policy or philosophical proposal, nor a prescription. A first step is to notice how things play out.