Remember the Housing Bubble?

March 7th, 2012 at 4:22 am

 While paging through some CoreLogic data on negative home equity—that, of course, is what you’re left with when you owe more on your home than what it is worth—I was reminded of the extent to which this still, after all these years, remains a factor weighing on both people’s economic security and the recovery.  Aggregating across the nation, about 23% of mortgages are underwater, according to CoreLogic, but as the figure shows, there’s great variation across states, from 61% in Nevada to about 6% in NY.  (Btw, “near negative equity” refers to mortgages within 5% of negative equity.)

Yet, we still hear people claiming that it’s the unions who tanked the economy, or regulation, or taxes, or the deficit, or resentment of rich people.  That’s all complete bunk and I can prove it…well, only in very reduced form (meaning “not really,” but bear with me anyway).

Suppose you compare changes in state unemployment rates, 2007-2010, against the negative equity shares in the graph (it might be better to use changes in home prices by state, but the states with the most negative equity are the states where home prices fell the most).

As shown in the figure, you actually get a tight fit.  The coefficient on negative equity has a t-statistic of 6.3 (highly significant) and that one variable explains 49% of the variation in unemployment rates across states.

Just for fun, let’s add union coverage by state.  Its coefficient is 0.001and its t-stat is 0.03 (highly INsignificant).

So in case anyone asks, it was the housing bubble–not unions–that tanked the economy.  What’s that you say…no one would ever think such a thing…?  You haven’t been to Wisconsin lately, have you?

Source: CoreLogic, BLS

Print Friendly

13 comments in reply to "Remember the Housing Bubble?"

  1. Peter Morgan says:

    And the reason for the housing bubble would perhaps be something to do with the banks lending policies?


  2. randy selig says:

    The city of Corvallis Oregon (55,000 folks, university town) has made the public transit system free. They put a transit fee on our water bills (maybe $3.75/month). Rides used to cost $.75 each way I believe. Rumor has it that ridership is way up. Not sure that the new funding source has plugged the budget hole. They did not let the citizens vote on this one-the commissioners did this all by their lonesomes.


    • Tom Shire says:

      That’s a fascinating policy implementation, Randy. I can see the YOYOs being completely up in arms over it, but I can also see the benefits that can accrue in terms of quality of life and potential fuel savings. Very interesting.


    • Chris G says:

      That’s encouraging. Can you point me at where to look for additional detail? The MBTA (Boston-area public transit) is a mess financially. (I believe the source of the problem is that they were saddled with Big Dig debt by our legislature.) Talk up until very recently was of deep service cuts and steep fare increases. The powers that be appear to have scaled back suggested service cuts but significant fare increases appear likely. It would be very helpful to have some examples of how other areas have made their systems work (financially) while we try to work out a solution here.


  3. Michael says:

    This is because Obama is obsessed with punishing “bad” homeowners, rather than accepting that the fault could possibly be with the banksters.

    Obama will go down as the Impunity President.


  4. NP says:

    Could you plot the union coverage against unemployment just for grins?


  5. Kenneth D. Franks says:

    Texas if my information is correct, lost about 18,000 public education employees for Fall 2011 / and Spring 2012. Because of our growing population we actually needed 14,000 more teachers / support staff to keep class size from increasing and continue remedial programs. This includes paraprofessionals. That means we are short about 32,000 employees. Our legislature only meets every other year however there is business going on at the Texas capital year round. We don’t expect an improvement for the coming school year as there will not be increased hiring unless Texas taps into the Texas Economic Stabilization Fund / “Rainy Day Fund,” which it won’t because of underfunding of Medicaid. This underfunding will likely deplete the fund in the next legislative session.


  6. Kenneth D. Franks says:

    Texas, if my information is correct, lost about 18,000 public education employees for Fall 2011 / and Spring 2012. Because of our growing population we actually needed 14,000 more teachers / support staff to keep class size from increasing and continue remedial programs. This includes paraprofessionals. That means we are short about 32,000 employees. Our legislature only meets every other year however there is business going on at the Texas capital year round. We don’t expect an improvement for the coming school year as there will not be increased hiring unless Texas taps into the Texas Economic Stabilization Fund / “Rainy Day Fund,” which it won’t because of underfunding of Medicaid. This underfunding will likely deplete the fund in the next legislative session.


  7. Jean says:

    Does that mean I get to blame Greenspan after all?


  8. Chris G says:

    Two things:

    1) The numbers for the sand states are grim. Makes me think of Sam Kinison’s (cruel) line about Ethiopia, “We have deserts here too. We just don’t live in them!”

    2) Have you checked to see the extent to which the NEGEQSH > 0.4 data are leverage points? Just curious. Looks like you’d get a steeper slope and intercept near zero without them.


  9. Chris G says:

    There was a good article in the Boston Globe several weeks ago on real estate prices in central MA. Prices are more or less holding steady in the well-to-do western suburbs of Boston but are in the tank once you get an hour or so to the west. Here’s the link:

    http://articles.boston.com/2012-02-15/realestate/31063888_1_home-values-housing-boom-prices

    I grew up not too far from Athol. Thirty years ago light manufacturing and farming played a significant role in the local economy. Both are significantly down from what they once were and the jobs that have replaced them – to the extent that they’ve been replaced – tend to be lower end in terms of pay and benefits. I have a hard time imagining that housing prices in central and western MA will rebound until the jobs outlook – more specifically, the salary outlook – improves.

    A back of the envelope calculation:
    What was the rule of thumb? You can afford a house 3x your annual salary? For median income in that region I’ll guess $15/hour * 2000 hrs/yr = $30k/year. Figure a two income household and that’s $60k/year median household income. So maybe the market will support $180k median sales price. But the $60k/year household income estimate seems optimistic to me though. My guess is the $100-150k is closer to what’s sustainable under current conditions. Contrast that with >$500k for a starter home in the Boston burbs.


    • Chris G says:

      I just re-read the article. There on the first page: median household income in Athol is $43k, state median is $63.5k. Hard for me to see how median home price will exceed $200k any time in the near future. Median price is now $286k. If I were a betting man, I’d bet negative equity share fraction will increase considerably in coming years.


Leave a Reply

Your email address will not be published.

Current day month ye@r *