The Housing Market ‘Reset’ and its Implications for Housing PolicyAlan MallachNon-resident Senior FellowThe Brookings Institution

Subprime lending exploded

Housing production outstripped household formation

-500

0

500

1000

1500

2000

2500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Units

(000

)

New Units Authorized

Increase inoccupied housing units

Source: Bureau of the Census

Between 1999 and 2009 6.9 million more housing units were approved thanthe number of additional house-holds

Prices took off, and then fell

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

Inde

x (1

/200

0=10

0)

US (20 city composite)PhoenixDetroitMinneapolisLas Vegas

Las Vegas

Foreclosures skyrocketed

0

2

4

6

8

10

12

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Year/Quarter

Perc

enta

ge o

f mor

tgag

es

Source: Mortgage Bankers Association

14% of all mortgages aredelinquent or in foreclosure

In foreclosure

Delinquent but notin foreclosure

New housing production fell

0

2000

4000

6000

8000

10000

12000

14000

16000

2005-3

2005-4

2006-1

2006-2

2006-3

2006-4

2007-1

2007-2

2007-3

2007-4

2008-1

2008-2

2008-3

2008-4

2009-1

2009-2

2009-3

2009-4

2010-1

2010-2

Year/quarter

Units

Aut

horiz

ed in

Qua

rter

Las Vegas metro area new units authorized by quarter2005 through 2010

Source: Bureau of the Census

Homeownership rates have declined

65

65.5

66

66.5

67

67.5

68

68.5

69

69.5

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

% o

f all

hous

ehol

ds

Source: Bureau of the Census

Tenure patterns have shifted significantly

-1000

-500

0

500

1000

1500

2000

2500

3000

3500

2006-07 2007-08 2008-09 2009-10 2006-2010

Year (Q2 of each year)

chan

ge (0

00)

Ow ners

Renters

Nearly 3 millionmore renters

Net loss ofhomeowners

Source: Bureau of the Census

the “shadow inventory” is growing

0

500000

1000000

1500000

2000000

2500000

3000000

Q12008 Q22008 Q32008 Q42008 Q12009 Q22009 Q32009 Q42009 Q12010

Year/quarter

Mor

tgag

es in

OC

C s

ampl

e

Foreclosures completedNew foreclosures filedForeclosures in processSeriously delinquent (60+ days)

1.8 millionmortgages

3.4 millionmortgages

570,000mortgages

240,000mortgagesSource: OCC Mortgage Metrics

Nearly 25% of all mortgages are underwater

0

10

20

30

40

50

60

70

Nevada Arizona Florida Michigan California United States

% of mortgages underwater in 3rd quarter 2009 – top five states and United States

Vacancy rates have risen and remain elevated

...

.

.....

... ...

.50-100% above national median.More than double national median

Housing is affordable almost everywhere

Source: National Association of Realtors, median sales price of existing single-family homes 2009

Earnings have stagnated

0

100

200

300

400

500

600

700

1947 1967 1973 1979 1982 1989 1995 2000 2007

Rea

l ave

rage

wee

kly

earn

ings

Real average weekly earnings1947 to 2007 (2007 dollars)

Source: Economic Policy Institute

$622.81

$386.55

$589.72

Unemployment rates are elevated

0

2

4

6

8

10

12

14

16

18

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

% o

f wor

kfor

ce

Unemployment rate (official)Expanded unemployment rate

Source: Bureau of Labor Statistics, April of each year seasonally adjusted

17.1%

9.9%

Consumer confidence is at historically low levels

Manufacturing jobs are disappearing

0

5000

10000

15000

20000

25000

1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

Num

ber o

f job

s (0

00)

Manufacturing employment inthe United States 1964-2009

Source: Bureau of Labor Statistics

15.9M

19.4M

17.3M

11.9M

Household formations have declined

0

200

400

600

800

1000

1200

2000-2005 2005-2006 2006-2007 2007-2008 2008-2009

Hous

ehol

ds (0

00)

Averageannual increase 2000-2005= 1,122,000

AverageAnnualIncrease2005-2009= 631,000

Source: American Community Survey

Where is the rental housing?

3/4 of all private market rentalsare in 1 to 9 unit properties

Who is the target population for affordable housing?

Category (Federal definition)

Income range

Income range in Las-Vegas MSA (family of four)

Affordable rental range

Household share

Low income 50 to 80% of median

$32,501-$52,000

$800-$1300 per month

16% of households

Very low income

30 to 50% of median

$19,501-$32,500

$500-$800 per month

11% of households

Extremely low income

0 to 30% of median

$0-$19,500 Under $500 per month

13% of households