Buyer Beware: Floodplain Housing Is Overvalued

Did you pay too much for your house? If it's located in a flood plain, chances are you did, according to a National Bureau of Economic Research study. "Floodplain homes in the US are currently overvalued by a total of $34B, raising concerns about the stability of real estate markets as climate risks become more salient and severe."

Researchers Miyuki Hino and Marshall Burke matched FEMA's floodplain maps of 1,289 counties with CoreLogic's property sales data from 1996 through 2017. The results "show little evidence that information about flood risk is fully priced in property markets," they report. But in states with strict real estate disclosure laws, there is a floodplain discount because buyers are better informed. In states with the strictest disclosure laws—those requiring sellers to notify buyers if a property is in a floodplain, if it has been damaged in a flood, and the cost of flood insurance—the flood zone discount is -4.1 percent. Most states do not have strict floodplain disclosure laws, however, so buyer beware.

"Our findings suggest that many of the 3.8 million floodplain homes in the US are over-valued and that development in the floodplain likely exceeds what would be observed if asset prices fully reflected information about flood risk," the researchers conclude. "The additional risk created by these investments is likely growing due to climate change and the long-lived nature of housing and infrastructure."

Source: National Bureau of Economic Research, Does Information about Climate Risk Affect Property Values? Working Paper 26807 ($5).

Median Sales Price of New Homes Slips

The median sales price of new single-family houses sold fell slightly in 2018 to $326,400. This is below the 2017 record high of $331,000, after adjusting for inflation. Until 2018, the median sales price of new single-family houses sold had increased in every year since 2011.

Median sales price of new single-family homes sold, 2005 to 2018 (in 2018 dollars)
2018: $326,400
2017: $331,000 (record high)
2016: $322,000
2015: $311,700
2011: $253,600 (post Great Recession low)
2010: $255,400
2005: $309,700 (pre Great Recession high)

Perhaps there's a reason new home prices fell a bit in 2018. The falling price may be due to a lack of customers. Sales of new single-family houses are struggling to return to their historical average prior to the Great Recession. Between 1978 and 1999, an average of 652,000 new single-family houses were sold each year. In 2018, only 617,000 were sold—well below the average despite a bigger population and the presence of the large Millennial generation in the home buying age groups.

Source: Census Bureau, Characteristics of New Housing

Fun Facts about the Generations

An article in the Monthly Labor Review provides a comprehensive look at the spending patterns of Americans by generation. BLS economist Geoffrey D. Paulin has done yeoman's work in analyzing and comparing the demographic characteristics and spending patterns of each generation using data from the 2016 Consumer Expenditure Survey. From average spending to shares of aggregate spending, he not only provides the details but also analyzes them. Want to know what share of the food dollar is devoted to eating out? The share is highest among Millennials (47 percent) and drops with each succeeding generation to a low of 30 percent among the GI generation. Who spends the most on entertainment? Not Millennials, who spend less on entertainment than every generation except GIs.

Here's one tidbit from the report. Take a look at the variation by generation in the estimated market value of owned homes in 2016...

Estimated market value of owned home
All owners: $162,700
Millennials: $65,900
Gen Xers: $173,400
Boomers: $203,400
Silent: $205,500
GI: $121,200

The article defines the generations as follows: Millennials, born in 1981 or later (average age, 27.5); Generation X, born from 1965 to1980 (average age 42.9); Boomers, born from 1946 to 1964 (average age, 59.7); Silents, born from 1929 to 1945 (average age 76.7); GIs, born in 1928 or earlier (average age 90.2).

Source: Bureau of Labor Statistics, Monthly Labor Review, Fun Facts about Millennials: Comparing Expenditure Patterns from the Latest through the Greatest Generation

Trends in Home Values by Household Income

Regardless of household income—with one exception—most homeowners estimated a lower market value for their home in 2016 than their counterparts did in 2006, according to an analysis of Consumer Expenditure Survey data by the Bureau of Labor Statistics. The average homeowner valued his or her home at $172,263 in 2016—5.9 percent lower than the $183,212 estimated by homeowners in 2006. The second income quintile of homeowners was the only one to estimate a higher market value for their home in 2016 than in 2006...

Estimated home value in 2016 by income quintile (and % change since 2006)
Lowest: $63,932 (–10.9%)
Second: $102,084 (+3.1%)
Middle: $128,788 (–6.7%)
Fourth: $186,282 (–11.8%)
Highest: $380,958 (–3.7%)

Note: In the BLS analysis, 2006 home values are not adjusted for inflation.

Source: Bureau of Labor Statistics, Majority of U.S. Households Estimate Decreased Home Market Values from 2006 to 2016

Median Home Value Rises in 2015

Home values are rising, according to America's homeowners. The median value of owned homes climbed by a substantial 7.2 percent between 2014 and 2015, after adjusting for inflation. The nation's homeowners estimated their home's value to be a median of $194,500 in 2015, according to the American Community Survey. This is 10 percent more than the post-Great Recession low of $176,931 in 2013, but still 12 percent below the all-time high of $222,108 in 2007.

Median housing value, 2007 to 2015 (in 2015 dollars)
2015: $194,500
2014: $181,415
2013: $176,931
2012: $177,458
2011: $182,921
2010: $195,543
2009: $204,606
2008: $217,529
2007: $222,108

Source: Census Bureau, American Community Survey

Median New House Price at Record High

The wait is over: the median sales price of new single-family houses sold hit an all-time high in 2015, finally surpassing the 2005 peak after adjusting for inflation. Between 2005 and the 2011 post-Great Recession low, the median price of new houses sold fell 18 percent. Since then, the price of new houses has climbed 24 percent. The 2015 price exceeds the 2005 price by 1 percent (or $4,043).

Median price of new single-family houses sold (in 2015 dollars)
2015: $296,400 (new record high)
2014: $283,136
2013: $273,586
2012: $253,128
2011: $239,399 (post-Great Recession low)
2010: $241,087
2009: $239,407
2008: $255,508
2007: $283,380
2006: $289,805
2005: $292,357 (previous record high)

Source: Census Bureau, Characteristics of New Housing

Why Cities Have Been Gentrifying

A shortage of leisure time may be behind the growing vibrancy of the nation's cities, suggests a National Bureau of Economic Research study. Over the past few years cities have become magnets for time-starved skilled workers, who are driving up housing prices. By analyzing tract-level data for the 27 largest U.S. cities from 1980 through 2010, the study's authors find a critical shift in relative housing prices: In 1980, prices were higher in the suburbs than in city centers. By 2000, city centers had the highest housing prices.

Behind the shift in housing prices is reduced tolerance for commuting among time constrained, highly skilled (read: college educated) workers. "Gentrification may be the result of high-income households seeking to protect increasingly scare leisure by reducing time spent on low-utility activities such as commuting," summarizes the NBER Digest.

Living in the suburbs is doable when husbands work shifts and wives are at home, but the suburbs make less sense for a work force increasingly dominated by full-time workers (many of them dual-income couples). As leisure time contracted among skilled workers between 1985 and 2005, say the authors, those who could afford to cut the commute bought homes in urban centers, driving up prices and gentrifying neighborhoods.

Source: National Bureau of Economic Research, Bright Minds, Big Rent: Gentrification and the Rising Returns to Skill, Working Paper 21729 ($5)

Median Housing Value Grows—Finally

The median value of owned homes in the United States increased in 2014 for the first time since the Great Recession. The nation's homeowners estimated their home's value to be a median of $181,200 in 2014, according to the American Community Survey. This is 2.5 percent more than the post-Great Recession low of $176,721 in 2013, after adjusting for inflation, but 18 percent below the 2007 median of $221,845.

Median housing value, 2007 to 2014 (in 2014 dollars)
2014: $181,200
2013: $176,721
2012: $177,247
2011: $182,705
2010: $195,311
2009: $204,363
2008: $217,271
2007: $221,845

Source: Census Bureau, American Community Survey