Wharton News: November 2011
Fernando Ferreira
The Origins of the U.S. Housing Boom
Associate professor of real estate, Fernando Ferreira, has been visiting a number of universities this year to present a paper about the estimation of the timing, magnitude, and potential causes of the U. S. housing boom ("Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," co-authored with Professor Joe Gyourko; http://www.nber.org/papers/w17374). In the course of his travels, Ferreira has been to: the University of Chicago, Booth School of Business; Brown University, Economics Department; Harvard University, Economics Department; UCLA Anderson School of Business; the National Bureau of Economic Research (NBER); the University of Connecticut, Department of Economics; and the University of Rochester, Department of Economics. In their paper, Ferreira and Gyourko provided "estimates of the timing, magnitudes, and potential determinants of the start of the last housing boom across American neighborhoods and metropolitan areas (MSAs) using a rich new micro data set containing 23 million housing transactions in 94 metropolitan areas between 1993 and 2009. [They also matched] transactions data with loan information, enabling [them] to observe household income and other demographics for each neighborhood. Five major findings [were] reported."
Joseph Gyourko
Housing in China and in the USA
Real estate department chairman, Joe Gyourko, recently had his paper, "Evaluating Conditions in Major Chinese Housing Markets" (co-authored with Jing Wu and Yongheng Deng; http://www.nber.org/papers/w16189), published by the National Bureau of Economic Research. In the article, Gyourko wrote, "High and rising prices in Chinese housing markets have attracted global attention, as well as the interest of the Chinese government and its regulators. Housing markets look very risky … Price-to-rent ratios in Beijing and seven other large markets across the country have increased from 30% to 70% since the beginning of 2007. Current price-to-rent ratios imply very low user costs of no more than 2% to 3% of house value. Very high expected capital gains appear necessary to justify such low user costs of owning. …[E]ven modest declines in expected appreciation would lead to large price declines of over 40% in markets such as Beijing, absent offsetting rent increases or other countervailing factors. Price-to-income ratios also are at their highest levels ever in Beijing and select other markets. Much of the increase in prices is occurring in land values. … Real, constant quality land values have increased by nearly 800% since the first quarter of 2003, with half that rise occurring over the past two years. State-owned enterprises controlled by the central government have played an important role in this increase, as our analysis shows they paid 27% more than other bidders for an otherwise equivalent land parcel."In "Housing Busts and Household Mobility: An Update," which Professor Gyourko co-authored with Fernando Ferreira and Joseph Tracy of the Federal Reserve Bank of New York, the authors provide "updated estimates of the impact of three financial frictions-negative equity, mortgage lock-in, and property tax lock-in-on household mobility." Their updated figures confirm their previous results: "negative equity reduces household mobility by 30 percent, and $1,000 of additional mortgage or property tax costs reduces household mobility by 10% to 16%." Their article "concludes with directions for future research, including potential improvements to measures of household mobility."
The article, Escaping China's 'Unsustainable' Property Boom Unscathed" in the September 13 Arabic Knowledge@Wharton, referred to Joseph Gyourko's interview with China Knowledge@Wharton "about the risks China's property investments face and whether any lessons can be gleaned from the bursting of the U.S.'s property bubble. In contrast to the U.S., news in recent weeks out of China is more positive. At the least, prices are not falling precipitously, according to the official data. However, for the first time in three years, property prices in Beijing were flat month on month in July, while 30 other cities across China reported lower or flat prices, according to the National Bureau of Statistics. And some of the country's largest developers are reporting a slowdown in demand. While China's housing market seems to have escaped the same fate as the U.S.'s, is it too soon to cheer? Yes and no, according to Gyourko." He commented, "My worry is that people will begin to think that because the property boom in China has lasted for a long time, it will last forever. That is the big risk. People can become complacent about the risks of prices dropping. I fear that too many people think real estate has become risk-less, and it is obviously not. Right now, what's fueling this is that there are a lot of people in China who don't have anything better to do with their money. In the U.S., you can put your money in a lot of different places, such as stocks and bonds. In China, you can only put your money in the bank and earn an absolutely guaranteed negative real rate of return on your bank deposits, since the Chinese government controls the interest rate. Many people who thought they would put their money in housing instead have seen a big appreciation over the last seven or so years." Read more at http://knowledge.wharton.upenn.edu/arabic/article.cfm?articleid=2715
Witold Rybczynski
Rybczynski Addresses Building Security and Releases New Book
Witold Rybczynski's article on the impact of heightened security on federal buildings in Washington, D.C., appeared in Foreign Policy. He was a keynote speaker at the Municipal Arts Society Summit in New York, delivered the inaugural Warren Gill Lecture at Simon Fraser University in Vancouver, B.C., and was a keynote speaker at the annual meeting of the Society of Architectural Historians in Charleston. Rybczynski was recently quoted in The New Yorker and The Edmonton Journal, and on CBC Radio. He was named an honorary member of Les amis de la montagne in Montreal. His new book, The Biography of a Building: How Robert Sainsbury and Norman Foster Built a Great Museum, was published in London and New York at the end of October.
Albert Saiz
The All-American Building
Albert Saiz was quoted in The New York Times' article (September 4) "All American, Floor to Roof? Not So Simple." In chronicling general contractor Anders Lewendal's quest to build a house in Montana with all-American materials, Johnson wrote, "Economists say it is hard to verify … that about 75 percent of the average American home is made in the United States already… "'The truth is that we are in a global economy and it's very interconnected, for good or bad,' said Saiz. 'It's very hard to know the impact of your purchasing decisions and the consequences of what you do.' Professor Saiz said the fluid nature of labor markets could also make the implications of all-American more complicated. In much of the nation, for example, though less so in this working-class corner of Montana, houses are built with Mexican or other foreign-born labor, which is a kind of foreign input since a part of the wages often goes back across the border. And if demand for, say, nails or screws made in the United States did go up, Professor Saiz said, the basic manufacturing industry jobs created–low skill and probably low pay–are the kind that American workers are often disinclined to take anyway."
Susan Wachter
Susan Wachter Testifies to Congress; Is in Demand on Housing
Susan Wachter testified in front of the U.S. House of Representatives at a hearing on "The US Housing Finance System in the Global Context" (Oct. 13), and spoke at a Boston Federal Reserve Bank conference on "The Long Term Effects of the Great Recession" during "A New World for the Housing Market and the GSEs" (Oct. 18). Dr. Wachter responded to a paper by Daniel Fetter at the NBER Universities Research Conference on "Housing and Mortgage Markets in Historical Perspective" in Boston (Sept. 23). As a member of the World Economic Forum Real Estate Council, Dr. Wachter took part in the "Summit on the Global Agenda" in Abu Dhabi (Oct. 9-11); took part in a panel, "The Government's Role in Housing Policy" at the Roosevelt Institute in Washington, D.C. (Sept. 13); and was in a roundtable discussion for the Consumer Financial Protection Bureau regarding "The State of Research and Future Research Avenues" in Washington, D.C. (Oct. 6).Dr. Wachter was quoted in American Bankers in Kevin Wack's "Poison Pill: How the 'Qualified Mortgage' Exception Killed Risk Retention." (Aug. 18). She was quoted in a Bloomberg News report by David M. Levitt, Hui- yong Yu and Dan Levy, "Commercial Real Estate Deals Decline in U.S." (Oct. 20). She was interviewed on Fox Business on "Why Can't We Revive the Housing Market?" (Sept. 30); and by Larry Kudlow on CNBC on "Is Housing Crushing Confidence?" (Oct. 19). An article in the Huffington Post by Alexander Eichler: "Obama's Plan to Target Foreclosed Properties Depends on a Broader Recovery" quoted her (Oct. 9). She was quoted in "4 Reasons the Mortgage Mess Won't Get Fixed" by Katherine Reynolds Lewis in The Fiscal Times (Oct. 14). Dr. Wachter was interviewed for "The Takeaway" with Celeste Headlee and John Hockenberry on WDET (Sept. 16) and appeared in "Radio Times with Marty Moss-Coane" on WHYY (Sept. 15).
