When a Nobel-prize winner shrugs his shoulders, and says, "I don't know ... " to a question directly related to his field, it gives you pause.
Which is what economist, and Nobel winner, Robert Shiller is apt to do when you ask him what will happen next with the housing economy. He can tell you as well, or maybe better than anybody else what has happened historically and up to the last few months in the housing economy.
But when it comes to predicting what's around the next corner, I've heard him say, more than a few times, "I don't know, and if anybody tells you they do know, they're lying."
Now, we know that a high-anxiety moment lurks somewhere offstage of most of our fields of vision when it comes to speculating on what will happen to people's motivations to buy, sell, and engage on the residential real estate transaction dance floor over the next year or so.
We know that interest rates are already up--in relative terms--by a greater delta than they've spiked in more than a decade. We know too that those relative increases matter when it comes to what Nobel prize winner Shiller calls "Animal Spirits," which is a force-in-itself-of-nature when it comes to collective behavior around valued assets like property and homeownership. "Fear of missing the moment" can be as powerful a motivator for people, en masse, to choose to buy homes as any other variable factor either supports or suppresses those motivations.
Here, the ATTOM Data Solutions (RealtyTrac) team led by senior vp Daren Blomquist takes a look--in the surreal, pre-interest-rate spiral calm before the storm--at relative affordability in a rent-vs.-buy context for different metros around the country, an analysis that's been generated annually over the past several years of the housing recovery. Top line, the report says, in exactly two-thirds of U.S. housing markets, it's more affordable to buy a home than to rent one.
Of course the devil is in the details on what's below the top line.
“While buying continues to be more affordable than renting in the majority of U.S. markets, that equation could change quickly if mortgage rates keep rising in 2017,” said Daren Blomquist, senior vice president with ATTOM Data Solutions, the new parent company of RealtyTrac. “In that scenario, renters who have not yet made the leap to homeownership will find it even more difficult to make that leap this year. Additionally, renting may end up being the lesser of two housing affordability evils in a growing number of high-priced markets.”
Blomquist notes that in 354 of the 540 United States counties ATTOM Data analyzes, it's more affordable for area residents to make monthly payments on a median priced home, including mortgage, taxes, and insurance, than it is to pay the rent on a three-bedroom rental. Zero in on geographies, and fissures in homeownership affordability start to reveal themselves in markets where young adults want to gravitate toward better jobs. Blomquist notes:
"Renting is more affordable than buying a home in 186 of the 540 counties analyzed for the report (34 percent), including Los Angeles County, California; Harris County (Houston), Texas; San Diego County, California; Orange County, California; Kings County (Brooklyn), New York; Dallas County, Texas; Queens County, New York; Riverside County, California in the inland area of Southern California; King County (Seattle), Washington; and Santa Clara County (San Jose), California."
Now, the rent narrative is one that has been super-charged with landlord power, which has leaned toward favoring the ownership side of the rent-vs.-buy equation. That's begun to shift as home prices for homeowneship have had quite a bit of pep in their step over the past couple of years.
Put those home price increases together with the monthly payment impact of a couple-hundred basis point increase in interest rates, and you're talking about both a real (absolute dollar) and psychological (percentage rate of change) cliff that prospective home buyers will need to address as they look at their five-year plan on home choices.
Add up the demographics, the economics, the financial trends, and the monthly payment impacts, look at all the headwinds and how they're offset by equally forceful tailwinds, and guess what? Nobody knows.
Hence, the Shiller shrug. You might call it the Nobel thing to do when times are this uncertain.
