the u.s. housing confidence index™
TRANSCRIPT
TheU.S.HousingConfidenceSurvey™
and
TheU.S.HousingConfidenceIndex™
Overview
www.pulsenomics.com ©2014-2018PulsenomicsLLC
Pulsenomics®,HousingConfidenceSurvey™,andHousingConfidenceIndex™aretrademarksofPulsenomicsLLC.
"Overthelastthreedecades,wehavelearnedagreatdealaboutthedynamicsofhomeprices.Ourresearchshowsthatrealestatevalueshaveenormouswealtheffects,butthemarketsareinefficient,andarepropelledbyexpectationsofmarketparticipants.Thesehousingconfidencedataarecriticalinputstoourunderstandingofconsumerbehavior,andwhererealestatemarketsandtheeconomymaybeheading."
Karl“Chip”Case(1946–2016)
“Thissurveyandtheseindiceswilladdimmeasurablytoourunderstandingofhousingmarkets,withunprecedenteddetailedinformationthroughtimeandacrossgeographicalareas.Wehavealwaysbeenmostlyinthedarkaboutfundamentaldriversofhomeprices–nowthatwillchange.”
RobertShillerYaleProfessor,NobelLaureateandPulsenomicsHonoraryAdviser
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TableofContents
Part1: TheU.S.HousingConfidenceSurvey™(HCS)
• Overview 3
• SampleSizes 4
• NationalandMetropolitanAreaSamples;OnlineSurveyMode 5• SamplingApproach;QualityControlMeasures 7
• SurveyAccuracy 8
• OtherSelectedHousingSurveys,ConfidenceSurveysandRelatedIndices 10
Part2: TheU.S.HousingConfidenceIndex™(HCI)
• DefinitionandPurpose 13 • HCIMethodologyOverview;Coverage 14
• InterpretingHCIValues 15• Context 16
Part3: WhyTheU.S.HousingConfidenceSurvey™and
TheU.S.HousingConfidenceIndex™areImportant 18
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ProductionandManagement
HCSandHCIweredevelopedandareadministeredbyexpertswithestablishedtrackrecordsforproducingauthoritativesurveyresearchandU.S.housingindices.TheyareproducedbyPulsenomicsLLCunderthedirectionofitsfounder,TerryLoebs.Pulsenomics®isanindependentresearchandconsultingfirmwithuniqueexpertiseconcerningtheU.S.housingmarketthatspecializesindataanalytics,newproductandindexdevelopmentforinstitutionalclientsinthefinancialandrealestatearenas.
Loebshasmorethan30yearsofexperienceinthecapitalmarketsandindevelopinginnovativeproductsandservicesdrivenbyU.S.housingdata.Formorethanadecade,heledthecommercialdevelopmentoftheCase-ShillerIndexes®andthesuccessfulefforttoestablishtheirworld-widereputationasthepremierhomepriceperformancebenchmark.LoebswasacentralfigureinthelaunchoftheS&P/Case-ShillerHomePriceIndices,andacatalystindevelopingnewfinancialproductsandmarketinfrastructureforU.S.homepriceriskmanagement,includingtheCMEHomePriceFuturesandOptionsmarket,andthefirststockexchange-tradedhomeprice-linkedsecurities.HeistheauthorandmanagerofHCSandHCI,aswellasTheZillow®HomePriceExpectationsSurvey™(HPES),whichPulsenomicsadministerseachquartertoanexpertpanelcomprisedof150leadingeconomists,portfoliomanagers,strategists,andrealestatemarketanalysts.
“Inthemostrecentboom,payinghighpricesrequiredanoptimisticassessmentoffuturepricegrowth.Risingpricesaremoststronglyassociatedwithoptimisticexpectations,andcreditmarketconditions…playedasupportingrole.”
(Excerptfrom“ANationofGamblers”,byEdwardGlaeser,NBER,January2013)
TheU.S.HousingConfidenceSurvey™
“Lettheinfluxofmoneybeeversogreat,iftherebenoconfidence,propertywillsinkinvalue,andtherewillbenoinducementoremulationtoindustry.Thecirculationofconfidenceisbetterthanthecirculationofmoney…Theestablishmentofconfidencewillraisethevalueofproperty,andrelievethosewhoaresounhappyastobeinvolvedindebts.”
ExcerptfromJamesMadison’sspeechatCommonwealthofVirginiaConvention,June20,1788
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Overview
TheU.S.HousingConfidenceSurvey™(HCS)isthefirsthouseholdsurveydevelopedtofacilitatesystematicmeasurementandreportingofconsumerconfidenceintheU.S.housingmarket.HCSisuniqueamongconsumerandeconomicconfidencesurveys.AstheinstrumentforcollectingthemarketintelligenceusedtoproduceTheU.S.HousingConfidenceIndex™(HCI),HCSiscomprisedofarobustdatasetthat:
• Systematicallymeasureshousingconfidencenationallyandinindividualmetropolitanareamarkets.
• Gaugesattitudesconcerninghomeownershipandprevailingmarketconditionsamongallhouseholdtypes,andseparately,forhomeownersandrenters.
• Measureshomevalueexpectationsforbothshort-termandlong-termhorizons.
• Quantifies,analyzes,andtracksimportanthouseholdattitudesbytenurecategoryandkeydemographicvariables.
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HonoraryAdvisers
Karl“Chip”CaseandRobertShillerwerenamedPulsenomicsHonoraryAdvisersin2013.ThedevelopmenteffortforHCSandHCIwasinspired,inpart,bytheirencouragement,input,andmorethan85collectiveyearsofpioneeringresearchconcerninghomepricesandwealtheffects,homebuyerexpectations,financialmarkets,andbehavioraleconomics.
ChipCase(1946-2016)wasaProfessorofEconomicsatWellesleyCollege,whereheheldtheComanandHepburnChairinEconomics,andtaughtfor34years.HewasaseniorfellowoftheJointCenterforHousingStudiesatHarvardUniversityandPresidentoftheBostonEconomicsClub.ChipalsoservedasamemberoftheboardsofdirectorsoftheAmericanRealEstateandUrbanEconomicsAssociation,theMortgageGuaranteeInsuranceCorporation(MGIC),theDepositor'sInsuranceFundofMassachusetts,CenturyBank,theLincolnInstituteofLandPolicy,andtheRapportInstituteforGreaterBoston.Hewasauthororco-authoroffivebooksincludingPrinciplesofEconomics,presentlyinitseleventhedition.
RobertShillerisSterlingProfessorofEconomicsatYaleUniversity,andProfessorofFinanceandFellowattheInternationalCenterforFinance,YaleSchoolofManagement.Bobhaswrittenextensivelyaboutfinancialmarkets,financialinnovation,behavioraleconomics,macroeconomics,realestate,statisticalmethods,andonpublicattitudes,opinions,andmoraljudgmentsregardingmarkets.Hehasbeenresearchassociate,NationalBureauofEconomicResearchsince1980,andhasbeenco-organizerofNBERworkshops:onbehavioralfinancewithRichardThalersince1991,andonmacroeconomicsandindividualdecisionmaking(behavioralmacroeconomics)withGeorgeAkerlofsince1994.Hewritesaregularcolumn"Financeinthe21stCentury"forProjectSyndicate,whichpublishesaroundtheworld,and"EconomicView"forTheNewYorkTimes.InOctober2013,BobwasawardedtheNobelPrizeinEconomicSciences,andwaselected2016PresidentoftheAmericanEconomicAssociation.
HCSdeploysasurveyinstrumentdevelopedforaspecificpurpose:togatherconcrete,measurableconsumerattitudesconcerninghomeownershipandlocalrealestatemarketconditionsthatenableproductionofHCI.Incollaborationwithitsprojectadvisersandpartners,andwithaviewtowardselicitingaccurateanswers,PulsenomicsdesignedtheHCSinstrumenttobeengaging,relevantandcomprehensibletobothhomeownerandrenterrespondents.
TheHCSquestionnairewascraftedbysubjectmatterexpertsandthoroughlytestedinthefield.Theinstrumentisadministeredtoadultrespondentswhoarethesoleorjointdecision-makerconcerninghouseholdfinancialmatters.1
Inadditiontoresponsedataconcerninghousingmarketconditions,expectations,andhomeownershipaspirations,keydemographicinformationiscollectedfromeachrespondenttoenablepost-stratificationweighting.ThesamplebalancingweightsarecalculatedandappliedattheindividualmetropolitanarealevelsothatHCSresultsandHCIlevelsreflecttheuniquepopulationattributesofeachgeographicmarketstudied.2
HCSisadministeredinauniformandsystematicmanner,andinaccordancewithapplicableStatelaws,Federallaws,andcodesofprofessionalconduct(e.g.,thoseoftheAmericanAssociationforPublicOpinionResearch,theNationalCouncilonPublicPolls,andtheInsightsAssociation).AdherencetothesecodesensurethatHCSisdeployedusingthehighestprofessionalstandardsofsurveyadministration,andenablePulsenomicstoproduceHCIthatareauthoritativeandbasedonconsistentlyreliabledata.
SampleSizes
EachtimeHCSisfielded,atleast500completedHCSquestionnairesarecompletedbyheadsofhouseholdwithineachof25majormetropolitanareas,andseparately,3,000arecompletedbyheadsofhouseholdacrossall50statesinproportiontothenationalhouseholdpopulation.ForeacheditionofHCS,Pulsenomicscompilesmorethan700,000responsedatapointsthatarerecordedfromaminimumof15,500completedquestionnaires.31HCSfieldworkisexecutedbyPulsenomicsstrategicpartner,SurveyUSAofClifton,NewJersey.TheHCSinstrumentincludesapproximately45questions,althoughtheactualnumberofquestionspresentedtoHCSrespondentsisdependentonseveralfactors,suchaseachrespondent’stenureprofileandanswerpattern.Forexample,certainsurveyquestionsarespecifictoowner-occupantsorrenter-occupants;therespondent’sanswerpatterncantriggerquestion-branchinglogicwithinHCSthatdetermineswhetherafollow-upquestionisnecessary,andifso,whatversionofafollow-upquestionisappropriatetopresent.TheHCSquestionnaireisavailableathttps://pulsenomics.com/Housing_Confidence_Survey.html2Post-stratificationweightsforeachmetroareaarederivedfromtheU.S.Censusdata,andappliedforkeydemographiccharacteristics(i.e.,age,gender,race/ethnicity)andhouseholdtenureprofile(i.e.,owner-occupied,renter-occupiedhomes).Forthenationalsample,thebalancingweightsreflectthedemographiccharacteristicsandtenureprofileofallU.S.households.3Over-samplingmaybeemployedtoensurethathard-to-reachpopulationsegmentsarenotunder-represented;thus,theactualnumberofcompletedquestionnairescollectedforeachmetroareatypicallyexceeds15,500.
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NationalandMetropolitanAreaSamples
Inadditiontoanation-widestudy,HCSresearchisconductedin25majorU.S.metropolitanareas:
Atlanta Denver LosAngeles Philadelphia SanFrancisco
Boston Detroit Miami Phoenix SanJose
Chicago Houston Minneapolis St.Louis Seattle
Columbus Indianapolis Orlando SanAntonio Tampa
Dallas LasVegas NewYork SanDiego WashingtonD.C.
OnlineSurveyMode
HCSusesdatacollectedelectronicallyfromlargesamplesofinternetusers.SurveyrespondentscompletetheHCSquestionnaireviatheinternetontheirsmartphone,tablet,desktopcomputer,orotherelectronicdevice.Anadultage18oroverwhoisthesoledecision-makerorajointdecision-makerconcerninghouseholdfinancialmattersisselectedbyasystematicprocedurethatprovidesabalanceofsurveyrespondentsbygender,age,race/ethnicity,andhouseholdtenure.4
Fortheforeseeablefuture,untilanentirelynewcommunicationsparadigmisinvented,Pulsenomicsexpectsinternet-usersamplestobethebestoptionforgatheringHCSrespondentdata--notbecausesuchnon-probabilitysamplesare4HCSnationalsamplesalsousegeographicregionasabalancingfactor.
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ideal,preferredorperfect--butbecausetheyarenowsuperiortoolder,datedmethodologieswhichyieldless(andcostmore)thantheyusedto.Pulsenomicsbelievesthattheuseofinternet-usersamplesandcollectionofrespondentdataonlineachievethebestpossiblebalancebetweenkeyHCSgoals:mitigatingtotalsurveyerror(TSE),optimizinggeographiccoverageandexecutionefficiency.5
Thereliabilityofmid-20thcenturysurveymethods(e.g.,thosethatrelyontheU.S.mailandlandlinetelephones)havebeencompromisedbyacombinationofsocietalandtechnologicalchangesthathaveunfoldedinrecentdecades.6Profoundlifestylechanges,largernumbersofmultiple-earnerhouseholds,longeraveragecommutetimes,theproliferationofmobile“smart”phones,theinternet,andotherdigitalcommunicationstechnologiesarejustsomeofthefactorsthathavefundamentallyalteredconsumerpreferencesandbehaviorsthataffectsurveysamplingandresponseratesinthe21stcentury.
Whilesurveyresearchersroutinelybalancerespondentdatatomatchkeycharacteristicsofthetargetpopulation,relativetothepast,thosewhogatherfeedbackfromtelephonerespondentstodaymustapplylargerweightstothedatatheycompileinordertoneutralizetheill-effectsofnon-coverageandnon-responsebiases.Alas,adjustmentsintendedtoaddressnon-participationratesintelephonesurveyscancompromisetotalsurveyaccuracyinimmeasurableways.
5HCSusedamulti-modal,blended-sampleapproach(alandlinesampleframewasusedtoaugmentaninternetcellphoneusersample)throughJuly2016.6Notlongago,themajorityofprivately-fundedconsumerresearchstudieswerebaseduponlandlinesampleframes,withrespondentstypicallyselectedproportionatetoeachmetropolitanarea’spopulationthroughtheRandomDigitDialing(RDD)method.RDDisdesignedtogivealllistedandunlistedlandlinetelephonenumbersanequal,non-zerochanceofbeingcalledandinterviewed.Althoughmosttelephonesurveystodayincludesomepercentageofcell-phonerespondents,neitherthephysicallocationnorplaceofresidenceofmobilephoneuserscanbeascertained;comprehensivedatabasescomprisedoftheuniverseofcellphoneusersdonotexist,anditisillegalforresearchersto“auto-dial”cellphonenumbers.
Theproliferationofmarketing“junkmail”,andthepublic’sgrowingrelianceonelectronicmessaging(emails,texts)forwrittencommunications,andgrowinguseofdigitalpaymentsforbillremittancesarejustafewfactorsthathavecontributedtolowresponseratestosurveysdisseminatedviaU.S.mail.
Theubiquityofvoicemail,caller-IDandothercall-screeningtechnologieshasimpededtheabilitytoreachsurveyrespondentstelephonically.Unsurprisingly,responseratesfortelephonesurveyshaveplummetedoverthepasttwodecades(andhaveneverbeenlower);thedegreeoftelephonicnonresponseencounteredbyopinionresearcherstodayischallengingfundamentalassumptionslong-heldamongthepublicandmedia(i.e.,thatasamplerepresentativeofthestudypopulationisassuredbyrandomlyselectingtelephonenumbersand/ordialingacombinationofcellphoneandlandlinerespondenttargets).
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SamplingApproach
HCSemploysastratifiedquotasampling.Thismethodisdesignedtocapturekeypopulationcharacteristicsthatareproportionaltothoseintheoverallpopulation,andentailsdividingapopulationintosmallergroups,orstrata,formedaccordingtogroupmembers'sharedattributesorcharacteristics.
Todiversifythesurveyrespondentpoolandenhancerepresentativeness,HCSsamplesaredrawnfromanetworkofsuppliers.7Thecompositionandqualityofeachsample,andeachsampleprovider,areproactivelymonitoredtoensureHCSdataintegrityandconsistency.QualityControlMeasures
HCSincorporatesmultiplelayersofqualitycontroltoenhancethereliabilityofrespondentdata.
SurveyTopicBlinding
Tomitigateselectionbias,HCSrespondentsareblindedtothesurveysubjectmatterbeforeagreeingtocompleteit,andnoresearchsponsorname(s)arepresented.In-surveyandpost-surveyQC
• Multiplein-surveyrespondentintegritytestsidentifyillogicalandunrealisticresponses.ThesesafeguardsensurethatrespondentsarereadingHCSquestionscarefully,andansweringthemthoughtfully.8
• Digitalfingerprintingtechniquesareemployedtoterminatebots,preventduplicaterespondents,andflagout-of-marketrespondents.9
• Atwo-wayspeedfilterisappliedtoallrespondentswhocompleteHCS.10SampleproviderQC
• AnyHCSsampleproviderthatusesemailrecruitmentmustcomplywithindustry-standarddoubleopt-inproceduresformarketresearch.11
• EachproviderusedasasourceforHCSsamplesismonitoredonanongoingbasisforthequalityofsamplestheyprovide,andareactivelyreviewedviaasystematicbenchmarkingprocess.12
7Relianceonasingle-sourceofonlinesamplecanincreasebias(e.g.,non-coverage).ThecombinationsofsamplesuppliersusedtoconductHCSaretrackedforeachofthe25metro-areasamplesandthenationalsampleeachtimeHCSisfielded,andaremanagedovertimewithaviewtowardspreservingdataqualityandconsistency.8HCSisimmediatelyterminatedwhenarespondentfailsanyoneofthesein-surveyqualitychecks,andalldatareceivedfromsuchrespondentspriortoterminationarediscarded.9Responsesfromout-of-marketrespondents(e.g.,thosecompletingHCSviaanIPaddressthatisinconsistentwiththeirrecordedplaceofresidence)arediscarded.10AlldatareceivedfromrespondentswhocompleteHCSmorequickly(ormoreslowly)thanthresholdratesareautomaticallydiscarded.11Theopt-inprocessindicatestherespondents’relationshipwiththesampleprovider.Doubleopt-inreferstoaprocessthatrequiresproactiveconfirmationfromthepersonjoininganonlinepanelthats/hewishestobeapanelmemberandunderstandswhatpanelmembershipandsurveyparticipationentails.12Onceperquarter,abrieftestinstrumentdesignedtomeasurerespondentattentiveness,timespent,answerconsistency,andresponsequalityisadministeredtoarepresentativesampleofeachprovider’sonlinerespondentpanel.Oncecollected,thetestdataarecomparedtocorrespondingperformancebenchmarkstoassesssamplequality.
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Samplingerrorisonlyoneofseveraltypesoferrorthatsurveyresearchersmustmanage.Othersourcesofsurveyerrorinclude:
• Thesequenceandorderingofquestions
• Theaccuracyandconsistencyofthesurveyquestions(iftheyarespoken)andresponses(iftherespondentdataaremanuallyrecorded)
• Theclarityandconsistencyofinterviewervoices
• Theinabilitytocontactsomemembersofthepopulation• Therefusalofsomemembersofthepopulationtoparticipate
• Thedifficultyoftranslatingeachquestionnaireintoallpossiblelanguagesanddialects
• Theextenttowhichresponsedataareweightedandweightingmethodology(“designeffects”)
SurveyAccuracy
TheoverarchingaccuracygoalofHCSismitigatingtotalsurveyerror(TSE).Consistentwiththisgoal,theHCSsurveyinstrumentdesignincorporatestheinputandfeedbackfromsubjectmatterexperts,learningfromiterativefieldtesting,andthecontinuousscrutinyofrespondentdata.Severalfactorsimpactthereliabilityofsurveyresearch.Although“totalsurveyerror”(TSE)canbemanaged,itisimpossibletomeasurewithprecision;non-samplingerrorscannotberoutinelyquantified,andoftencannotbequantifiedatall.TheonecomponentofTSEthatcouldbequantifiedinthepast—samplingerror—isincreasinglydifficulttoisolatetoday.• MarginofSamplingError—“MOE”
Fordecades,journalistswereconditionedtolookforamarginofsamplingerrorwhenexaminingresearchresults.Whileresearchpractitionersknewthatsamplingerrorwasonlyoneofmanydifferentpossiblesourcesoferrorintheexecutionofanopinionresearchproject,general-assignmentreportersondeadlinescannedthepollsters’memoforthe“MOE”andhavingfoundit,theyincludeditintheirstories.Today,researchscientistsaregraduallyreplacingamarginofsamplingerrorwithadifferentkindofmeasure--thecredibilityinterval--becauseMOEismeaningfulonlyforprobabilitysamples.13• CredibilityIntervals
Inanevolvingopinionresearchworldwhereamajorityofstudiesarecompletedusinganon-probabilitysample,statisticiansandresearchtradeassociationsstillneedtoexpresstojournalistsandotherconsumersofsurveydatahowmuchofabrackettoplacearoundagivensurveyfinding,wheresuchbracketisolatestheerrorthatmightbeattributabletosamplingalone.ToaccomplishthisobjectiveforHCS,Pulsenomicshasadoptedthecredibilityintervalbecauseitisausefulgaugeofsamplingerrorwhennoteverypotentialrespondenthasaknown,non-zerochanceofinclusioninasurvey.
Acredibilityintervalisanestimateofanintervalaroundameasuredpercentagewithinwhichthetruepercentage,ifalleligiblerespondentsweretobeinterviewed,wouldhaveanx%chanceoffalling.Forsufficientlylargesamplesizesandintheabsenceofpriordata,thecredibilityintervalwillbesimilartothetwostandard-deviationconfidenceintervalthatwouldbeobtainedfromaprobabilitysample,afterestimatinganeffectivesamplesizebasedontherespondentweightsusingaformuladevelopedbyLeslieKish(squareofsumofweightsoversumofsquaresofweights).14
Bywayofillustration:if70percentofHCSrespondentsindicatethat“nowisagoodtimetobuyahome”,andifthecredibilityintervalis3percentagepoints,thentheintervalbetween67%and73%mightbedisplayedastherangeofcredibleoutcomes(usingtheindustryshorthandof70%,“+/-3percentagepoints.”).Thesedatacouldthenbe
13Aprobabilitysampleisoneforwhicheverymemberofthetargetpopulationhasanequal,known,andnon-zerochanceofselection.Random-digitdialing(RDD)oflandlinetelephonenumberswasembraceddecadesagobytheopinionresearchcommunityasameanstoreliablycreateprobabilitysamples.Comprehensive,reasonablyaccuratedatabasesoflandlinetelephonenumbersstillexistandarereadilyaccessiblebysurveyresearchers;databasesofcellphonenumbersandinternetaddressesarelessreliablebecausetheycanbeincompleteanderror-prone.14Bayesiancredibilityintervalsrepresentuncertaintyasasubjectiveprobabilityestimate,whichshouldnotbeinterpretedasafrequency.Fora95%credibilitylevel,thereisnocollectionofalternativeresearchoutcomeswhichwouldfallwithintheinterval19timesoutof20followingabell-curvedistribution.Acredibilityintervalrepresentsa“degreeofbelief”inaproposition.Foramorethoroughoverviewofcredibilityintervals,see“TheEvolutionfromMarginofSamplingErrortoCredibilityInterval”.
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interpretedasfollows:Thereisa95%chancethattheactualpercentageofpeoplewhobelievethatnowisagoodtimetobuyahomeissomewherebetween67percentand73percent.
Credibilityintervalsareaffectedbysamplesize,aswellastheweightsusedtobalancetherespondentdata.ThetablebelowreflectsindicativecredibilityintervalsforHCSrespondentdata.15
HCSSample/Sub-Group SampleSize* IndicativeCredibilityInterval
Composite25MSAs(AllHouseholds) 12,500 1.1%
Composite20MSAs(AllHouseholds) 10,000 1.2%
National
AllHouseholds 3,000 2.2%
HomeownerSubgroup 1,800 2.8%
RenterSubgroup 1,200 3.4%
MillennialsSubgroup 1,200 3.4%
IndividualMetroArea
AllHouseholds 500 5.3%
HomeownerSubgroup 300 6.8%
RenterSubgroup 200 8.4%
*Subgroupsamplesizesareindicative;theyvarybymetroareaandaresubjecttochangeovertime.
15HCSusesasampleof500headsofhouseholdforeachmetroareastudy,and3000headsofhouseholdforitsnationalstudy.Weightingfactorsvaryovertimeaccordingtosamplecomposition,andbyindividualsurveyquestion.Credibilityintervalsforanysamplesub-groupwillbelarger(i.e.,therangeofcredibleoutcomeswillbewider)thanthatcorrespondingtoasampleinitsentirety.
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CaseandShillerbeganasurveyofrecenthomebuyersin1988,andithasbeenconductedannuallysince2003.Withinthesesurveys,consumersinfourcitieshavereportedtheirone-yearandten-yearexpectationsforhomevalues.InawhitepaperpreparedfortheFall2012BrookingsPanelonEconomicActivity,acumulativeanalysisofthesurveydata,comprisedofnearly5,000completedmailsurveys,waspresentedbyCase,ShillerandThompson.Overtheyears,conclusionsmadebytheauthorsinconnectionwiththisresearchthatarepertinenttoHCSandHCIinclude:
“Weseea[housing]marketlargelydrivenbyexpectations.”“Webelievethatoneaspectof[theU.S.housingbubbleandbust]hasnotreceivedtheattentionitdeserves:theroleofexpectations.”“Bothkindsofexpectations[one-yearandten-year]areimportant.Homesellerswillhaveanincentivetowaitanotheryearifone-yearexpectationsarehigh,whilebuyershaveanincentivetobuynowratherthannextyear.But,inmakingageneraldecisionwhethertobuyatallornot,andforjudgingtheoveralllong-terminvestmentreturn…thelonger-termexpectationsarelikelytobemoreimportant.”“Thelong-termexpectationalsomattersimportantlyfordemandforhousing,andthelong-termexpectationisimportanttothewaythatpeoplejudgewhethertobuyahome.”“Moreoftherootcausesofthebubblecanbeseenin[homebuyers’]long-term,ten-yearhomepriceexpectations.”“Thedataalsoshowthat[home]buyerswere,ifanything,outinfrontofshort-term[homevalue]changesthatwereoccurring…”“Itisfromthesenebulousandrelativelyslow-moving[ten-year]expectationsthatthebubbletookmuchofitsimpetus,andthatfuturehomepricemovementswillaswell.”“Therearereasonstosuspectthatthe[home]pricechangesweactuallyseearerelatedtoswingsinpublicopinionsratherthanfundamentals.”(RobertShillercommentingonaMargaretHwangSmithandGarySmithpaperpresentedatBrookingsinMarch2006).
OtherSelectedHousingSurveys,ConfidenceSurveysandRelatedIndicesCase-ShillerHomebuyerSurveys
Oneofthemostdurableofallhousing-focused,consumerattitudinalsurveystodateisaresearcheffortinitiatedbyKarlCaseandRobertShiller.Thisprojectbeganin1988,andhasfocusedontheattitudesandexpectationsofrecenthomebuyersinfourcities.16ThesurveyisadministeredannuallyusingaquestionnairethatissenttoseveralhundredrecipientsviaU.S.mail.
16Asofthiswriting,themostrecentwhitepaperconcerningthisresearchwaspresentedtoTheBrookingsInstitutionin2012.See“WhatHaveTheyBeenThinking?HomeBuyerBehaviorinHotandColdMarkets”,byKarlE.Case,RobertJ.ShillerandAnneThompson.
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TheConferenceBoardsurveywasstartedin1967,andispresentlyconductedbyNeilsen.Itisbasedonapproximately3,000responsestomailedquestionnairescomprisedofjustfivequestions.LiketheUniversityofMichiganindices,neithertheConferenceBoard’sConsumerConfidenceIndexnoritsindicatorPresentSituationsIndexorExpectationsIndexreflecthousingconfidence(i.e.,noneofthefivesurveyquestionspertaindirectlytothehousingmarket).
TheabovegraphicaccompaniedtheleadstoryontheU.S.economyintheMay30,2013editionofTheWallStreetJournal.
Policymakers,marketanalystsandthefinancialmediaoftenalludeonlytovaguenotionsofhousingconfidence.Sometimes,theyassumeorimplythatactualandexpectedchangesinhomevaluesareinputstothecalculationofpopulareconomicconfidenceindices.
Butlegacyeconomicconfidenceindicesdonotdirectlyreflectperspectivesonrealestatemarketconditions,homevalueoraffordabilityexpectations,homeownershipaspirations,oranyelementofconfidenceinthehousingmarket.
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(continuedfromprecedingpage)
Policymakers,marketanalystsandthefinancialmediaoftenalludeonlytovaguenotionsofhousingconfidence.Sometimes,theyassumeorimplythatactualandexpectedchangesinhomevaluesareinputstothecalculationofpopulareconomicconfidenceindices.
Butlegacyeconomicconfidenceindicesdonotdirectlyreflectperspectivesonrealestatemarketconditions,homevalueoraffordabilityexpectations,homeownershipaspirations,oranyelementofconfidenceinthehousingmarket.
“Astronghousingmarkethasbuoyedtheeconomicrecoverybyimprovingconfidenceamongconsumers,encouraginghouseholdspendingandgeneratingconstructionjobs.”(TheWallStreetJournal,9/19/2013)
“Jobgains,alongwiththestrengtheninghousingmarket,haveinturncontributedtoincreasesinconsumerconfidenceandsupportedhouseholdspending.”(BenBernanke,OpeningRemarks,6/19/2013PressConference)
“Thebroad-basedhousingimprovementsappeartobebuoyingconsumerconfidenceandspending.”(TheNewYorkTimes,5/29/2013)
“RisinghomepricesshouldhelpbuoyconsumerconfidenceandthebroadereconomybecausehousesrepresentthelargestfinancialassetformanyAmericans.”(TheWallStreetJournal,5/29/2013)
“…anumberoffactorshavehelpedconfidence,fromfallinggasolinepricestoarisingstockmarkettoarecoveringhousingmarket.”(MarketWatch,5/17/2013)
“ConsumerConfidenceJumpsasU.S.HomeValuesClimb”(BloombergNewsreportheadline,4/30/2013)
“ManycreditrecoveringhomevaluesforhelpingboostApril’s[ConsumerConfidenceIndex]number.”(U.S.News&WorldReport,4/30/2013)
"U.S.businessesandconsumershaveshownsurprisingmuscleinrecentweeks…confidencehasbeenbuoyedbyrisinghomevalues…”(TheWallStreetJournal,3/22/2013)
"ConsumerconfidencereboundedinFebruary…itispossiblethatconfidencewilldropbackinthecomingmonths…However,thecontinuingrecoveryinthehousingmarketmayfurtherboostthatconfidence.”(CBSMoneyWatch,2/26/2013)
“However,depressedhomepriceshavecontinuedtobeastructuralheadwindtogrowthbykeepingalidonconfidenceandcloggingupkeytransmissionchannelsofmonetarypolicy.”(SocieteGeneraleCrossAssetResearch,2/21/2013)
”Improvementinthe[housing]sectorcouldhelpbroadtractsoftheeconomybycreatingjobs,improvingconsumerconfidenceandboostingproperty-taxreceiptsformunicipalities.”(TheWallStreetJournal,1/27/2013)
“HouseholdwealthintheU.S.climbedinthethirdquarter,reflectingincreasesinstockvaluesandhomepricesthatarehelpingboostconsumerconfidence.”(BloombergNews,12/6/2012)
“Animprovinghousingmarketisbuoyingconsumers’spiritsandspurringspending…Theconfidenceeffects[ofU.S.housing]aremassive.”(TheWallStreetJournal,11/27/2012)
“Still,otherhome-valueandhome-priceindicatorssuggestpricegainshavecontinued–apossibleexplanationforwhyconsumersentiment,thoughlowbyhistoricalstandards,continuestoimprove.”(TheWallStreetJournal,10/31/2012)
“Betternewsonrealestatecouldexplainwhysurveysofconsumerconfidencepostedbetter-than-expectedreadingsinSeptember–evenasotherdataforthismonth…remainweak.”(TheWallStreetJournal,9/25/2012)
“Rising[house]pricesalsocouldhelpturnaroundconsumer’fragilepsychology,anunpredictablebutimportantfactorthatcanfuelmoresales.”(TheWallStreetJournal,9/10/2012)
“Consumersseemtosharehispessimism[forhomeprices].AconsumerconfidencesurveyreleasedbyTheConferenceBoard…felltoafour-monthlow.”(TheWallStreetJournal,5/29/2012)
“[…homepricechangesexplain]agreatdealofthedepthanddurationofthedeclineinconsumerconfidenceduringtheGreatRecessionanditsaftermath.Thisvariablehasbecomemoreimportantsince2000,asthevalueofhousingappreciatedatarapidrateandthencollapsedafter2007asthehousingmarketimploded.The30percentnationaldeclineinhousingpricessincethepeakexplainsmuchofthecrateringofconsumerconfidence.”(“ConsumerSentimentandSpending”,TheMilkenInstitute,Sept2011)
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TheU.S.HousingConfidenceSurvey™(HCS)isalarge-scalehouseholdresearchsurveythatispresentlyconductedtwiceannuallynationally,andwithineachof25ofthelargestU.S.metropolitanareas.
• Eacheditionofthesurveyisadministeredto15,500U.S.adultheadsofhousehold:dataarecompiledfrom25separatemetroareasamplesof500residents,andanationwidesampleof3,000residents.
• TheHCSinstrument–whichhasbeendesignedandvettedbysubjectmatterexpertsandthoroughlytestedinthefield–isdeployedviatheinternet,andforeachofthemetropolitanareassurveyed,respondentdataarebalanced(weighted)accordingtoitsuniquepopulationattributes(i.e.,gender,age,race/ethnicity)andhouseholdtenureprofile(i.e.,owner-occupied,renter-occupied).
• TerryLoebs,founderofPulsenomicsLLC,istheauthorandmanagerofHCSandHCI.KarlCaseandRobertShillerwerenamedHonoraryAdvisersin2013;thedevelopmenteffortforthisprojectwasinspired,inpart,bytheirencouragement,input,andmorethan80collectiveyearsofpioneeringresearchconcerninghousingwealtheffects,homebuyerexpectations,andbehavioraleconomics.
TheU.S.HousingConfidenceIndex™
DefinitionandPurpose
TheU.S.HousingConfidenceIndex™(HCI)wascreatedbyPulsenomicstoeffectivelymonitorandconciselycommunicatethepulseoftheU.S.residentialrealestatemarketnationallyandforindividualmetropolitanareas.17The768uniquetimeseriesthatcompriseHCIarebaseduponresponsedatacollectedfromTheU.S.HousingConfidenceSurvey™(seesidebar).TheHCIdatasetincludesthreefactorsub-indexesthatprovideinsightintothedriversofconsumers’overallhousingconfidence:• TheHousingMarketConditionsIndex™Reflectsconsumersentimentconcerningprevailingmarketconditionswithinlocalhousingmarkets.
• TheHousingExpectationsIndex™Quantifieshouseholdexpectationsregardinghousingaffordability,localhomevalueappreciationinthenear-termandlongrun,andmore.
• TheHomeownershipAspirationsIndex™Revealsandtrackskeyconsumerattitudesconcerningtheiroverarchinghomeownershipgoals.
ForeveryindividualmetropolitanmarkettrackedbyHCI,foreachofthefourU.S.CensusRegions,andforthenationasawhole,Pulsenomicsalsoproducestenuresub-indexesthattrackhousingconfidencebyhouseholdtype(i.e.,TheRenterConfidenceIndex™andTheHomeownerConfidenceIndex™).TheMillennialHousingConfidenceIndex™(MHCI)serieswaslaunchedin2018toseparatelytrackhousingmarketsentimentamonghouseholdsheadedbymembersofthemillennialgeneration.18TheuniquecompositionofHCIprovidesvaluable,uncommoninsightintotheU.S.housingmarket,andcomplementslegacymeasuresofmacroeconomichealth.Importantly,theconsumerattitudesthatarequantifiedandtrackedbyHCIcanhaveoutsizedinfluenceoneconomicdecision-makingbyhouseholds,andsignificantperiod-to-periodchangesinHCImayforeshadowimportantshiftsinlocalhousingmarketdynamicsandmacroeconomicactivity.HCIcanenhanceeconomicanalysis,policy-making,decision-making,andriskmanagementprotocolspertainingtokeyU.S.housingmarkets,localeconomies,andthenationaleconomybysystematicallyquantifyingandmonitoringchangesinhousingconfidenceovertime.
17PulsenomicsLLCistheindexcalculationagent,andtheownerofallintellectualpropertyrelatedtoHCSandHCI.18Thethreefactorsub-indexesarealsoproducedinconjunctionwitheverytenure-specificHCIandMHCI.
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HCIMethodologyOverview19
HCIiscomputedusingaweighteddiffusionindexmethodology.Diffusionindicesmeasurethedegreethatdataarediffused(dispersed)withinasample.LeadingU.S.economicdataseriesarecommonlysummarizedorindexedusingthisapproach.20EachHousingConfidenceIndex(HCI)21isaweightedcompositemeasureofthreeunderlyingfactorsub-indexes,eachofwhichquantifyauniquedimensionofconfidenceinthehousingmarket:
• TheHousingMarketConditionsIndex(HMCI)• TheHousingExpectationsIndex(HEI)• TheHomeownershipAspirationsIndex(HAI)
PulsenomicscalculatesaheadlineHCIandthethreeunderlyingsub-indexesattheindividualU.S.metropolitanmarketlevelusingmorethan700,000individualconsumerresponsesgatheredfromeacheditionofTheU.S.HousingConfidenceSurvey™(HCS)22.HCICoverage
InadditiontothefourHCIsproducedforthetotalofallsurveyedhouseholdsineachmetromarket,Pulsenomicscalculatestenure-specificsub-indicesforeachcity,i.e.,headlineandindicatorHCIsfor(a)thesubsetofrespondentswhoarehomeownersand(b)thesubsetofrespondentswhoarerenters.Pulsenomicsalsocalculatesheadlineindicesandsub-indicesforhouseholdsheadedbymembersofthemillennialgeneration.EacheditionofHCIiscomprisedof768indexvalues.23
19ThecompleteHCIMethodologydocumentisavailableathttps://pulsenomics.com/Housing_Confidence_Index.html20Afewexamples:TheWellsFargoHomebuilderConfidenceIndex;TheInstituteofSupplyManagement’s(ISM)PurchasingManagers’Index;TheConferenceBoard’sConsumerConfidenceIndex,PresentSituationsIndex,andExpectationsIndex;andTheUniversityofMichigan’sIndexofConsumerSentiment,IndexofCurrentEconomicConditionsandIndexofConsumerExpectations.21Pulsenomics®,HousingConfidenceIndex™,andHousingConfidenceSurvey™,aretrademarksofPulsenomicsLLC.22Presently,HCIsarecalculatedforeachof25ofthelargestU.S.metropolitanstatisticalareas,selectedcombinationsofthoseMSAs(CompositeHCIs),foreachofthefourmajorU.S.geographicRegions,andforthenationasawhole(U.S.HCI).CompositeHCIsarecalculatedbycombiningandbalancingselectedmetro-levelHCIsaccordingtotheweightingfactorsprovidedwithinthetablespresentedonpages7-9.23Priorto2018,Pulsenomicspublished252indexseries.In2018,withtheadditionoffivenewmetro-areasamplesandalargenationwidesample,thetotalnumberofHCSrespondentsincreased55%,andPulsenomicsexpandedHCIproductionwithnewly-addedmetro-levelHCIs,nationalHCIs,regionalHCIs,andmillennialHCIs.
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Numberofmarkets: 32[1National,4Regional,25Metro-level,2Metrocomposites]
HCIs: x4[1HeadlineHCI,3indicatorindices(HMCI,HEI,HAI)]
TenureCategories: x3[AllHouseholds,HomeownerHouseholds,RenterHouseholds]
GenerationCategories: _x2_[AllGenerations,MillennialGeneration] 768
InterpretingHCIvalues
HCIvaluesaresetonanumericscaleof0to100.Themaximumindexvalueof100wouldindicatemaximumconfidence(i.e.,uniformlypositiveanswerstorelevantquestionswithinTheU.S.HousingConfidenceSurvey™(HCS)wereprovidedbyrespondents);theminimumindexvalueof0wouldindicatenoconfidence(i.e.,uniformlynegativeanswerstorelevantquestionswithinHCSwereprovidedbyrespondents).
Foranyindexreportingperiod:
• Anindexvalueexceeding50designatesapositivedegreeofconfidence
• Anindexvalueequalto50indicatesaneutraldegreeofconfidence
• Anindexvalueslessthan50indicatesanegativedegreeofconfidence.
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“[…homepricechangesexplain]agreatdealofthedepthanddurationofthedeclineinconsumerconfidenceduringtheGreatRecessionanditsaftermath.Thisvariablehasbecomemoreimportantsince2000,asthevalueofhousingappreciatedatarapidrateandthencollapsedafter2007asthehousingmarketimploded.The30percentnationaldeclineinhousingpricessincethepeakexplainsmuchofthecrateringofconsumerconfidence.”(“ConsumerSentimentandSpending”,TheMilkenInstitute,September2011)
“Housingactivityandpricesseemlikelytorecover…butitwillbeimportanttomonitordevelopmentsinthissectorcarefully.”
(FederalReserveChairmanBenBernanke,July17,2013)
“Peoplearefeelingbetterabouttheirhomes…andthat’sdrivingthemtospendmore…[but]consumers’psychecanchange.”
(HomeDepotCFOCarolTome,August20,2013)
Context
ThehistoricU.S.homepriceboomandbusthaveremindedusthat,despitetheirenormityandimportance,housingmarketsareincompleteandinefficient.TheunprecedentedscaleandpersistenceofgovernmentsupportfortheresidentialrealestatesectorinthewakeofthebustunderscorethathealthyhousingmarketsarevitaltotheprosperityoftheUnitedStateseconomyandoursociety.ConcernsabouttheinevitablereductioningovernmentsupportarepalpableandsuggestthatvolatilityinU.S.residentialrealestatemarkets–broughttoextraordinarylevelsduringtheboomandbust–islikelytoremainelevatedforyearstocome.TheU.S.housingexperienceofthepastdecade–alongwithevolveddemographics,rapidlychangingconsumerattitudes,andunpredictablegovernmentpolicies–allsuggestthat,goingforward,newandmoreproactiveformsofrealestatemarketintelligencewillbenecessarytodetectandmonitoremergenthousingriskseffectively.Confidenceinourhousingmarketsisaprerequisiteforstablerealestateassetvaluesandahealthyeconomy.Housingconfidencecaninfluenceindividualbehavior,homeprices,andeconomicconsumption.Inthedigitalage,theincreasedvelocityandheightenedvolatilityofconsumerattitudechangessuggestthathousingconfidenceshouldbemeasuredandmonitoredinasystematicfashion.24
HCIrepresentsatimely,ground-breakingefforttodojustthat:systematicallyquantifyandeffectivelymonitorhousingconfidencenationallyandwithinmajormetropolitanmarketsacrosstheUnitedStates.25HCIisconstructedusingdatacollectedfromHCS,alarge-scalehouseholdsurveythatgaugeshousingmarketsentimentand
expectationsbycollectingrelevantdatafromconsumersacrosstheUnitedStates.TheHCSinstrumentwasdevelopedbyPulsenomicstogatheraccurateandtimelyassessmentsofprevailinghousingmarketconditions,homeownershipaspirations,andhomevalueexpectationsamongtheadultpopulation–bothhomeownersandrenters–livingindifferentmetropolitanareasacrossthecountry.HCIreflectsthedegreeofconfidenceamongbothrentersandhomeownerswithinspecifichousingmarkets,in“realtime”(incontrasttomostinformationsets,priceindices,andresearchpertainingtoU.S.housingmarkets,whicharetypicallyderivedfrompropertytransactiondata–whichinmanycases,areseveralmonthsoldatthetimetheyarecompiledandreported).HCIrepresentsthecurrentattitudesofallmarketstakeholders–notjustthoseofhouseholderswhohappentohavebeeninvolvedinarecentrealestatetransaction.26
24Residentialrealestatehaspowerful,two-wayconsumerwealtheffectsanda“confidencemultiplier”.Theconfidencemultiplierinrealestatemanifestsitselfthroughbothprice-to-priceandprice-to-GDP-to-pricefeedbackcycles,anditcanbemagnifiedbyculturalandinstitutionalforces.(GeorgeA.AkerlofandRobertJ.Shiller.2009.AnimalSpirits:HowHumanPsychologyDrivesTheEconomy,AndWhyItMattersForGlobalCapitalism.PrincetonandOxford:PrincetonUniversityPress,pp.16-17,153-156.)25Patentpending.26Forexample,lessthanonepercentofallU.S.householdsareinvolvedinahomepurchaseorsalecontractinatypicalmonth.
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“Higherpricesofhousesandotherassets…haveincreasedhouseholdwealthandconsumerconfidence,spurringconsumerspendingandcontributingtogainsinproductionandemployment.”
(FederalReserveChairmanBenBernanke,May22,2013)
““It’sprettyclearthathousingisrecovering.That’sapositiveforgrowth.Itboostswealthandconfidence.”
(JimO’Sullivan,chiefU.S.economistatHighFrequencyEconomicsLtd.,April30,2013)
“Aresurgenthousingmarkethasaidedtheslow-growingU.S.economy,helpinggenerateconfidenceamongconsumers,boostinghouseholdspendingandcreatingconstructionjobs.”(TheWallStreetJournal,August22,2013)
HCIisrelevanttomillionsofindividualsandthousandsofinstitutionsaroundtheworldwithastakeinthe$28trillionU.S.housingmarket.27HCIcanprovideearlysignalsofimpendingchangestohousingmarkethealthbysystematicallymeasuringpertinentconsumerattitudesandexpectationsthatcaninfluencelocalmarketpricesforresidentialrealestate.Recentyears’eventshaveillustratedthatchangingperspectivesregardingthehealthofU.S.housingmarketscanhaveprofoundeffectsoneconomicconsumption,homeownershiprates,houseprices,investorpsychology,andfinancialmarketliquidity.Unlikemostotherlargemarketsandmajorassetclasses,U.S.housingisgeographicallyfragmentedandlacksefficientpricediscoveryandothersignalsofimpendingvaluechangesduetotherelativeilliquidityofresidentialrealestateassetsandtheinherentinefficienciesoftheirmarkets.
However,justlikethoseofotherassetclasses,futurelevelsoftransactionvolumeandpricesinresidentialrealestatemarketsaredependentonthesentimentsandexpectationsofcurrentandprospectivemarketstakeholders.28BoldpolicyactionsinrecentyearsbyTheWhiteHouseandTheFederalReservehaveunderscoredtheprofoundimpactthatthe
housingmarketcanhaveonbothconsumerconfidenceandmacroeconomichealth.29Theseunprecedentedfederalinitiatives,ongoingpolicydebates,andgrowinginterestinhomepriceexpectationsamongpolicymakersalso:
• Suggestthattraditional,laggingindicatorsofhousingmarketconditions(e.g.,homepriceindicesandrealestatetransactionvolumes)areincompletegaugesofmarketrisk,and
• Implythatthesentimentsandexpectationsofhousingmarketstakeholdersareveryimportant,impactfulandwarrantcarefulmonitoring
Ofcourse,prevailingconditions,expectationsandaspirationswithinhousingmarkets–housingconfidence–mustfirstbemeasuredeffectivelyandcommunicatedcomprehensiblyinordertoappreciatetheirfundamentalimportance.Thedifferencesinthesefactorsacrossindividualmarkets,andtheirdegreeofchangeovertimemustbequantifiedinordertounderstandandmonitorhowvariancesinhousingconfidenceforeshadowmarketturningpointsandfuturelevelsofeconomicactivity.HCIistheonlymetricdesignedtoreflect,systematicallyquantifyandmonitorhousing-relatedsentimentsandexpectationsforspecificrealestatemarkets;assuch,theyarepositionedtoevolveintoauthoritativebellwethersoffuturehomevaluechangesandmacroeconomicactivity.
27Thelatestavailablerealestatevaluefigureis$27.8trillionasofthiswriting(TableB.101,BalanceSheetofHouseholdsandNonprofitOrganizations,FourthQuarter2017FlowofFundsAccountsoftheUnitedStates,BoardofGovernorsoftheFederalReserveSystem,March8,2018).28Althougheffortstodevelopmodern,morecompleteandliquidmarketsforU.S.housingriskareongoing(e.g.,TheCMEHomePriceFuturesandOptions),tradingvolumetodatehasbeensporadicandthin.Pricediscoveryinthehousingmarketisreceivedbypolicymakersandthegeneralpubliclargelyviapasttransactionsdataandpubliclyavailablepriceindices;however,thesedataareinherentlybackward-looking.29Asdescribedinsomedetailonpages9-11),noneoftoday’sheadlineconsumerconfidenceindicesreflectanydirectassessmentofprevailingconditionsintherealestatemarket,expectationsforhomevalues,orothersentimentconcerningthehousingmarket.
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WhyTheU.S.HousingConfidenceSurveyandHousingConfidenceIndexareImportant
ThenumberofU.S.housingmarketstakeholdersisenormous;individualstakesaretypicallyverylarge,andhavepractical,economicandemotionaldimensions
• Over130millionhousingunitssheltertheU.S.population,andthevalueofresidentialrealestateintheU.S.heldby
individualsandnonprofitorganizationsisapproaching$30trillion.EvenafterthehistoricU.S.housingbustandrecentgainsinfinancialassets,forthevastmajorityofAmericanhomeowners,residentialrealestateremainstheirsinglelargestasset.30
• Formanyhomeowners,theirhouseisnotonlyashelterandstoreofwealth,itisasourceoffamilyesteemandcivicpride.Formillionsofpeoplewhodonotownthehomethattheylivein,attaininghomeownerstatusremainsahallmarkofachieving“TheAmericanDream”.
• GovernmentsandprivatefinancialinstitutionsaroundtheworldareexposedtotheU.S.housingmarketvia$10.5trillioninmortgageandhomeequitysecurities.31TheU.S.federalgovernmentisthesinglelargeststakeholderinthehousingmarket,anditsstakehasgrownsignificantlysince2008.Thus,currentandfutureU.S.taxpayers–regardlessofhomeownershipstatusorgeographiclocation–haveanindirectbuttangiblestakeinthehealthofhousingmarketsacrossthecountry.
• TheintensityandpersistenceofnovelgovernmentpolicyinitiativesinthewakeofthehistoricU.S.housingbustunderscorethecriticaleconomicimportanceofhealthyhousingmarkets,andtheyhighlighttheneedtomorecarefullymonitortheirconditionandstability.Newinformation,moremodern,proactiveandcompleteriskmanagementinstitutionswillbekeyelementsof21stcenturysolutionsthatmakehousingandmortgagemarketslessvulnerabletofailureandpervasiveemergencygovernmentinterventionsdowntheroad.Systematicmonitorsofhousingconfidencearejustoneinnovationthatcanhelp.
HousingisakeydriveroftheU.S.economy
• HousingcontributessignificantlytoU.S.GDPthroughprivateresidentialinvestment(i.e.,constructionofsingle-familyandmultifamilystructures,manufacturedhomeproduction,residentialremodeling,realestatebrokerfees)andconsumptionspendingonhousingservices(i.e.,grossrentsandutilitiespaidbyrenterhouseholds,andhomeowners'imputedrentsandutilitypayments).Inrecentyears,asapercentageofGDP,thesecomponentshaveaveraged3-5%and12-13%,respectively,foracombinedaverageof15-18%.32
• Morethan12millionprivatesectorjobsaredirectlyorindirectlytiedtotheU.S.housingmarketthroughouttheconstruction,manufacturing,retailtrade,financialandotherserviceindustries.Thisrepresentsalmost9%ofthetotalU.S.laborforce.33
30In2011,TheUnitedStatesCensusBureaureportedaninventoryof132.3millionhousingunitsintheU.S.Thisfigurereflectsbothdetachedandattachedsingle-familyhouses,individualapartmentsinmultifamilystructuresandmobilehomes,occupiedaswellasvacanthomes.TheCensusBureau’s2017AnnualSupplementtoTheCurrentPopulationSurveyestimatesthat126.2millionU.S.householdscomprisearesidentpopulationof325.7millionpeople.ThelatestreadingofaggregateU.S.residentialrealestatevalueis$27.8trillionasofthiswriting(TableB.101,BalanceSheetofHouseholdsandNonprofitOrganizations,FourthQuarter2017FlowofFundsAccountsoftheUnitedStates,BoardofGovernorsoftheFederalReserveSystem,March8,2018).Forcomparison,accordingtotheWorldFederationofExchanges,theaggregatemarketcapitalizationofallU.S.-listedequitieswas$32.1trillionatyear-end2017.31SecuritiesIndustryandFinancialMarketsAssociation(SIFMA)FirstHalf2017SecuritizationReport.The$10.5trillionfigureincludessomeoverlap,assomemortgage-backedsecuritiescollateralizeotherMBS(i.e.,CMOs)andCDOs.32Datathrough2016fromTheU.S.BureauofEconomicAnalysisandTheNationalAssociationofHomeBuilders.332016BureauofLaborStatisticsemploymentdatafortheconstructionindustry,therealestatesubsector,manufacturers(i.e.,furniture,woodproducts,electricalequipmentandappliances),andretailtrade(i.e.,furniture,buildingequipment,gardensupply,electronicsandappliancestores).
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“Housingpricesareviewedbymanyasanimportanteconomicindicator.Infact,muchoftherecentoptimismregardingtheprospectsforamorevigorousrecoveryoftheeconomyisduetoevidencethatthehousingmarketisfirming.”(“FirstImpressionsCanBeMisleading”,FederalReserveBankofNewYork,LibertyStreetEconomics,March2013)
“TheU.S.housingmarket,whichplungedtheeconomyintorecessionfiveyearsagoandwasapersistentdragontherecovery,isnowakeyeconomicdriveratatimewhenothersectorsareslowing.”(TheWallStreetJournal,11/27/2012)
“AdisappointingreboundinU.S.housingcontinuestotripupthecountry’soveralleconomicrecovery,twoinfluentialFederalReserveofficialssaidonFriday,highlightingacorneroftheeconomythatstillfrustratesmonetarypolicymakers.”(Reuters,10/5/2012)
“ItwashousingthatlefttheU.S.economyinshambles.Nowitmaybehousingthatiskeepingitfrombuckling.”(TheWallStreetJournal,9/26/2012)
“Marketsandgovernmentinstitutionsarevisiblystrugglingtorespondconsistentlytoanunprecedentedrashofcrisesandconflicts.Thesestrugglesdiminishconfidence,whichcompoundstheunderlyingeconomicstressesandlowersexpectations.”(RobertShillercommentingonthedimmingoutlookfornationalhomepricesrevealedintheSeptember2011editionofTheHomePriceExpectationsSurvey)
“SomestrikingcontrastsinexpectationsforcumulativechangeinU.S.homepricesthrough2014continuedinJune,andhavepotentiallyprofoundimplications.Thedirectimpactonourforecastsofconsumerspendingandhousingstarts…wouldbehighlysignificant.TheindirecteffectsonGDP,unemployment,inflation,andhencemonetarypolicywouldalsobegame-changing.”(JoelPrakken,ChairmanofMacroeconomicAdvisers,commentingontheresultsoftheJune2010editionofTheHomePriceExpectationsSurvey)
“Thesesmallfirmsconsistentlycreate60to70percentofnewjobs,yearafteryear,andemploymorethanhalfoftheentireU.S.workforceat27milliondifferentplacesofbusiness.”
(Rep.SamGraves(R-Mo),ChairmanoftheHouseSmallBusinessCommittee,“SmallBusinessesDriveJobCreation,Growth”,TheHill.com,July11,2012)
• Actualandexpectedchangesinhomepriceshavecollateraleffectsonbusinessesandconsumers.Changesinactualorimputedhomeequitylevelsthataccompanyactualandexpectedhomevaluechangesimpactcapitalinvestmentbybusinessesandcreditmarketsviathesecollateraleffects,i.e.,tightercreditconditionscanemergeaslendersreacttothreatstotheircapitalfromdecliningcollateralvalues,andvice-versa.Homeequityloansareatraditionalsourceoffundingforpeoplestartingorexpandingasmallbusiness,andsmallbusinessesarethebiggestjobcreatorsintheUnitedStates.Housingcollateraleffectsaretransitoryinnature,butcouldcompoundpowerfulandlonger-lastinghousingwealtheffects(addressednext).Forexample,theCBOhasreportedthat,“Ariseinhomepricescouldhaveashort-livedeffectonconsumerspending,inadditiontothepermanentwealtheffect,ifhigherhomepriceseaseborrowingconstraints,especiallyforyoungerhouseholds.”34
34Equityextraction,ormortgageequitywithdrawal(“MEW”)hasbeenusedbysomeasaproxyformeasuringthetransitoryimpactofhigherhomevaluesonconsumerspending.“HousingWealthandConsumerSpending”(CongressionalBudgetOfficeBackgroundPaper,January2007)describesastrongnegativecorrelationbetweenMEWandthepersonalsavingrate.FormoreinformationonMEWandwealtheffects,seeAlanGreenspanandJamesKennedy,“SourcesandUsesofEquityExtractedfromHomes,”FinanceandEconomicsDiscussionSeriesNo.2007-20(Washington,D.C.:FederalReserveBoard,March2007).
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“Andperhapsmostimportant,homepricesarefinallyrisinginmuchofthecountry.Thatismakingiteasierforownerstoborrowagainstthevalueoftheirhomesandforsomeformerly"underwater"borrowerstotakeadvantageoflowinterestratesbyrefinancingtheirmortgagestoreducetheirmonthlypayments.Higherhomepricescanalsohaveapsychologicalimpact,makingownersfeelwealthierandthereforemorelikelytospend.”(TheWallStreetJournal,12/9/2012)
“Morethan97%ofpublic-sectorjobcutsaftertherecessioncamefrombudgetreductionsbystateandlocalgovernments,hithardbyfallingtaxrevenuewhenhousingpricescollapsed.Theirbudgetsarestartingtostabilizeasthehousingmarketrecovers,buttheiremploymentcontinuestoshrinkslowly.”
(“GovernmentPayrollsAreFacingNewPressures”,TheWallStreetJournal,3/24/2013)
“Housingalsomayhelpalleviatecliff-relatedweaknessinotherareasoftheeconomyduringthemonthsahead.Thesituationmightbesomewhatanalogousto2001,whenbusinesseslaid-offworkersandcutbackonspending,buthousinggainedground,helpingtobolsterconsumerspendingandmaketherecessionshortandshallow.”
(TheWallStreetJournal,11/28/2012)
• Localgovernmentemployment,spendingandinvestmentplanscanbedirectlyaffectedbyhousingmarkethealth.StateandlocalgovernmentsacrosstheU.S.employatotalof19.4millionworkers,andamongmunicipalities,propertytaxesareavitalrevenuesource,accountingfor$473billion(morethan70percent)ofthe$666billionintotaltaxrevenuecollectedbylocalgovernmentsacrossthecountryin2015.35Sincepropertytaxratesandrevenuesaredependentonprevailingrealestatevalues,fiscalplanning,spendingandinvestmentamonglocalgovernmentscanbesignificantlyimpactedbyactualorexpectedchangesinhomevalues.
Actualandexpectedchangesinhomevalueshavepowerfulwealtheffects
• PersonalconsumptionexpenditurespropeltheU.Seconomy.36Actualandperceivedhomevaluescanhaveabigimpactonconsumerspendingbehavior–andthusoveralleconomicactivity–duetotheirwealtheffects:whenvaluesincrease,orareexpectedtoincrease,homeownersfeelmorecomfortableandsecureabouttheirwealth,causingthemtospendmore.Importantly,researchconfirmsthathousingwealtheffectsarepowerfulandmorepotentthan
thoseofthestockmarket,andshowsthattherelationshipbetweenhousingmarketwealthandconsumptionissymmetrical.37Inotherwords,whenhousingmarketwealthdecreases,householdconsumptiondecreases,justaswhenhousingmarketwealthincreases,householdconsumptionincreases.
• Housingwealthaccountsforapproximatelytwo-thirdsofthetotalwealthofthemedianhousehold.Accordingto
FederalReservedata,28percent($7.1trillion)ofU.S.housingwealthdisappearedfromconsumerbalancesheetsaftertheU.S.housingbubbleburstmorethanadecadeago.Then,duringtheensuingrecovery(throughQ42017),housingwealthincreased53percent($9.5trillion).38
Assumingthattheelasticityofpersonalconsumptionexpendituresis0.10,thedeclineinhomevaluesduringthebustimpliesthatconsumerspendingwasdrivendown2.8percent,or$280billionlowerperyear;usingthesame0.10elasticityassumptionfortherecoveryyears,theriseinhomevaluesafterthebustimpliesthatconsumerspendingwasdrivenup5.3percent,or$636billionhigherperyear.39
35The19.4millionfigureincludesfull-timeandpart-timeemployees(seeTheUnitedStatesCensusBureau,2016AnnualSurveyofPublicEmploymentandPayroll.Forthelocalgovernmentbudgetdata,seeTheUnitedStatesCensusBureau,StateandLocalGovernmentFinancesSummary:2015).36Personalconsumptionexpenditureshaveaccountedforapproximately68percentofGDPoverthepastdecade(BureauofEconomicAnalysisdatathroughJuly2017).37KarlCase,JohnQuigley,andRobertShiller(January2013),“WealthEffectsRevisited:1975-2012”,NBERWorkingPaper,No.18667.38Baseduponthetotalnominalvalueofrealestateheldbyhouseholdsandnon-profitorganizations;includesalltypesofowner-occupiedhousingincludingfarmhousesandmobilehomes,aswellassecondhomesthatarenotrented,vacanthomesforsale,andvacantland.(TableB.101,BalanceSheetofHouseholdsandNonprofitOrganizations,FlowofFundsAccountsoftheUnitedStates,BoardofGovernorsoftheFederalReserveSystem).39Again,seeKarlCase,JohnQuigley,andRobertShiller(January2013),“WealthEffectsRevisited:1975-2012”,NBERWorkingPaper,No.18667.Inthispaper,theauthorsreportthatestimatesofconsumerspendingelasticityrangefrom0.03to0.18,butthosethatareestimatedwithseparatecoefficientsforupmarketsand
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“Nothing’swreakedquitethehavocontheU.S.economy,andindeedthenationalpsyche,asthesix-yearslideinhomeprices.”
(Barron’s,9/10/2012)
• In2007,TheCongressionalBudgetOffice(CBO)suggestedthatthedecade-longriseinhomepricesfrommid-1997addedasmuchas$460billionperyeartoconsumerspending.40WhilecitingsurveyresearchperformedbyKarlCaseandRobertShillerconcerninglong-termpriceexpectationsamongrecenthomebuyers,inthesamepaper,CBOwrote:
“Thewealtheffectmaybelargerthanthoseestimatesimplyifcurrenthomepricesdonotfullyreflectsomehomeowners’expectationsoffutureprices.Forhomeownerswhoexpect…gainsinthepricesoftheirhomesinthefuture,spendingisincreasednotjustbythetraditionalwealtheffectbutalsobytheimpactofthoseexpectedcapitalgains.Suchhomeownerswillmostlikelyreducetheirspendingiftheexpectedgainsinpricefailtooccur,evenifpricesdonotactuallyfall.”
• Thereis$11.8trillioninU.S.homemortgagedebtoutstandingasofQ32017;withahousingfinancesystembuiltuponalargefoundationoffinancialleverage,homeownernetwealthchanges–andthus,consumptionproclivities–tendtobeamplifiedbyhomevaluechanges.41
downmarketsareconsistentlyabout0.10indownmarkets.Theannualspendingchangeestimatesof$280billionand$636billionwerederivedfromseasonally-adjustedaveragepersonalconsumptionexpendituresfiguresof$10.0trillionduringthebustyears,and$12trillionduringtherecoveryyearsthrough2017,respectively(perTheBureauofEconomicAnalysis).40See“HousingWealthandConsumerSpending,”CongressionalBudgetOfficeBackgroundPaper,January2007.Althoughthereisaconsiderablebodyofresearchconcerninghousingwealtheffects,overtheyears,thestudieshaveyieldedavarietyofconclusionsregardingtheirsizeandtiming.RecentstructuralchangesintheU.S.housingandmortgagefinancemarketswroughtbythehistoricboomandbustinhomepricesislikelytostimulatefurtherstudiesofhousingwealtheffects,includingresearchregardingtheirdegreeofpermanence.41The$11.8trillionfigureincludes$1.3trillionindebtsecuredmymultifamilyhomes.(TableL.217,TotalMortgages,FlowofFundsAccountsoftheUnitedStates,BoardofGovernorsoftheFederalReserveSystem,December7,2017).
“Therecoveryinresidentialconstructionhasbeenhelpful,butnotsufficienttoreversethestructuralheadwindsemanatingfromhousingtothebroadereconomy.However,webelievethatthisisabouttochange.Duringthecourseoflastyear,homepriceshavealsobottomedout,and,moreimportantly,expectationsarenowforfurtherincreases.”
(SocieteGeneraleCrossAssetResearch,2/21/2013)
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“Oneparticipantpointedtoongoingchangesinarangeoffactors—includingdemographics,creditconditions,businessmodels,andconsumerpreferences—thatwerelikelyshiftingbothsupplyanddemandinthehousingsectorandconcludedthattheoutlookforthesectorwasquiteuncertainandpotentiallysubjecttorapidchanges.”
(ExcerptfromMinutesoftheFederalOpenMarketCommittee,March19-20,2013)
TheU.S.housingmarkethasenteredanew,historicallyvolatileera
DemographicshiftsandanunfamiliarconfluenceofmacroeconomicforcesleftinthewakeofthehistoricU.S.housingboomandbustareexacerbatingrealestatemarketvolatility,e.g.,• Increasinglylargenumbersofbabyboomer-homeownersarein,orareapproaching,theirretirementyears.42
• Recordandgrowinglevelsofstudentloandebthaveimpairedtheabilityofyoungadultstosavemoneyforahome
downpayment,impedingnewhouseholdformations.About43millionAmericanscurrentlyowealmost$1.4trillioninfederalstudentdebt,thehighestformofconsumerdebtintheU.S.excludingmortgages.43
• Institutionallandlordshaveaccumulatedmillionsofsingle-familyhomesandconvertedthemtorentalproperties,constrainingthesupplyofhomesthatwouldotherwisebeavailableforsaletofirst-timehomebuyers.44
• Unprecedentedcrisis-eramonetarystimulusprogramsarebeingslowlyunwound,andtheU.S.housingfinancesystemremainssubjecttosignificantreforms.
• Despiterecentpriceincreases,millionsofhomeownersstillowemoreontheirmortgagesthantheirhomesareworth.Somemarketobserversbelievethatthehistorichousingmeltdownandcreditcrisispermanentlyalteredthepsychologyofhomeownersandrentersalike.45
• Whilethe4.1percentnationalunemploymentrateinJanuary2018markeda17-yearlow,at62.7percent,thelaborforceparticipationrateremainsdepressednineyearsintotheeconomicrecovery,andismorethanfourpointslowerthanthehistoricalpeak.46
• The2017overhaulofthefederaltaxcodewillalterhomeownershipincentivesbycurtailingdeductionsformortgageinterestandpropertytaxes.
Theseandotherseminal,post-bustconcernsillustrateemergentdimensionsofhousingmarketriskthattraditionalrealestatedatasetsdonotmeasure,andthatlegacyriskmodelswillstruggletopredict.Theseissuesandthesystemicfailuresthatcontributedtotheepichousingbustandmortgagemarketmeltdownalsounderscorethemeritofevaluatingnewdatasetsandmodelsthatcanbebetter-calibratedtoeffectivelymeasureimportanthousingandmortgagemarketrisksinthe21stcentury.
42Babyboomers–agenerationabout90percentlargerthanGenerationX–areretiringatarecordrate.Inthecomingyears,inordertodownsizeand/orfundtheirretirement,increasingnumbersofboomersmayseektoselltheirhomestomembersofyoungergenerationswhoseviewsofhomeownershipmaybelessfavorableoverallrelativetothoseoftheirparentsandgrandparents.43“U.S.Student-LoanProgramLosingMoneyasBorrowersSeekDebtForgiveness”,TheWallStreetJournal,February2,2018.44Institutionalinvestorsexecuting“buy-to-rent”strategiesfacilitatedareductionofdistressedhomeinventoriesandhelpedtostabilizepricesduringthebust,buttheyalsocrowded-outindividualhomebuyers,especiallyfirst-timersunabletocompetewithaggressiveall-cashbids.Homeportfoliosheldbyinstitutionalinvestorstendtobeconcentratedgeographically,sotheeventualliquidationofthesepropertyportfolioscouldintroducenewhousingmarketrisksandheightenedvolatilityinthefuture.Foracogentoverviewofbusinessinvestorhomepurchaseactivity,itsbenefitsandpotentialrisks,seeFEDSNotes,“BusinessInvestorActivityintheSingle-Family-HousingMarket”,December5,2013.45CoreLogicestimatedthatthetotalnumberofmortgagedresidentialpropertieswithnegativeequitywas2.5millionhomes,or4.9percentofallmortgagedpropertiesasofQ32017.46BureauofLaborStatistics.
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“U.S.stocksrosetoarecordhighfollowingstronghousingandconsumer-confidencedata…SurginghousepricesfueledthelargestselloffinU.S.Treasurybondsin10months,signalinggrowinginvestoroptimismabouttheeconomy.”
(TheWallStreetJournal,5/29/2013)“Homepricesjumped10.2%inFebruarycomparedwithayearearlier,thebiggestriseinnearlysevenyears…Thathasgottheattentionofinvestorswhowantinontheaction.”
(“What’stheBestPathtoReal-EstateProfits?”Barron’s,April15,2013)
AuthoritativeU.S.housingandconsumerconfidencedatacanmovefinancialmarkets
Publicaccesstoandmediainterestinhousingdatahaveswelledduringthepastdecade.Formanyofthereasonsdescribedelsewherewithinthisdocument,authoritativeU.S.homedatacanhavesignificantandimmediateeffectsonfinancialmarkets–evensuchdatathatareinherentlybackward-lookingandreportedonalaggedbasis.
Thedegreeofaconsumer’sconfidenceaffectshis/hereconomicdecisions(e.g.,theamountofincometospendandsave),andhaslongbeenconsideredakeyindicatorofmacroeconomichealth.Muchlikeimportanthousingdata,authoritativemeasuresofconsumerconfidenceintheU.S.arewidelyanticipated,closelymonitored,andcangenerateheadlinesfollowingtheirpublicreleaseduetotheirimpactonfinancialmarkets.
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“OnthemorningofMarch15,stocksstumbledonnewsthatakeyreadingofconsumerconfidencewasunexpectedlylow.”
(TheWallStreetJournal,6/13/2013)
“Inthemostrecentboom,payinghighpricesrequiredanoptimisticassessmentoffuturepricegrowth.Risingpricesaremoststronglyassociatedwithoptimisticexpectations,andcreditmarketconditions…playedasupportingrole.”
(Excerptfrom“ANationofGamblers”,byEdwardGlaeser,NBER,January2013)
TheU.S.HousingConfidenceSurveyDeliversUnique,Forward-lookingInsightsHCSandHCIaredifferentinfundamentalwaysfromotherrealestatesurveys,homepriceandeconomicconfidenceindices.HCSisuniqueamongallconsumerhousingandeconomicconfidencesurveysbecauseitistheonlyonethatdoesallofthefollowing:
• Systematicallymeasureshousingconfidencenationallyandinindividualmetropolitanareamarkets.
• Gaugesattitudesconcerninghomeownershipandprevailingmarketconditionsamongallhouseholdtypes,andseparately,forhomeownersandrenters.
• Measureshomevalueexpectationsforbothshort-termandlong-termhorizons.
• Quantifies,analyzes,andtracksimportanthouseholdattitudesbytenurecategoryandkeydemographicvariables.
• ViaHCI,enablesconsistentandconcisereportingofprevailinghouseholdattitudesforeasypublicconsumption,comprehension,andtrackingovertime.
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