A few days ago an email turned up from the US think tank, the American Enterprise Institute, touting a new set of data.
Housing markets are inherently local, making them notoriously difficult to analyze due to the lack of reliable data at the local level. A new dataset from the AEI Housing Center, the first in a series of quarterly reports, aims to fill this void by analyzing housing market data for the 60 largest US metropolitan areas, as well as for the nation as a whole. The current dataset looks at housing data from 2018:Q4.
And so I clicked the link. This was the summary national data
US$197000 for an “average entry-level sale price” caught my eye (that is about NZ$292000 at the current market exchange rate, and of course Americans are – on average – earning more than New Zealanders). And of course that is a nationwide number, including the fruit of such dreadful housing markets as those in and around San Francisco.
So I started checking out some of the data for some of the cities (metropolitan statistical areas).
Here were the most expensive ones (in USD terms)
At current market exchange rates, I guess those might be roughly comparable to prices in Auckland and Wellington.
But here is a chart of a group of cities (non-exhaustive) I found with prices of $NZ300000 or under.
Remember that these aren’t tiny places. The whole dataset is for the 60 largest metropolitan areas. Some of these places are smaller than Auckland, but I couldn’t see any smaller than about a million people. A couple of the places on the chart are among the largest ten US cities.
Now perhaps, like me, you think New Zealand’s exchange rate is materially overvalued. But even if you thought that a long-term structural fair value exchange rate was more like 0.5 (as distinct from the current market rate of .67) the median of the cities in the chart would still have average entry-level homes (new and existing) selling for not much over NZ$300000.
How do the AEI researchers derive their numbers?
The study tracks housing activity both for the entire market and for entry-level and move-up buyer segments. We only focus on institutionally financed sales (meaning we exclude cash sales or sales with seller financing.) We define entry-level as all sales below the Federal Housing Administration (FHA) 80th percentile price in a metro and quarter. The rational for a dynamic price cut-off at the metro level is that the share of entry-level buyers varies across the country. According to FHA’s Production Report, around 80% of FHA’s purchase loans go to first-time buyers, who mostly compete with other first-time buyers from other agencies for entry-level housing. The 80th percentile price cut-off, therefore, captures this market segment reasonably well. This is confirmed by the data. Across the nation, the entry-level segment consists largely of first-time buyers, while the move-up segment consists mostly of repeat buyers.
That looks plausible. Perhaps people who know the data better will be able to pick holes in what they’ve done but – especially given the pervasive role of federal agencies in the US housing finance market – the numbers are unlikely to be off by enough to materially affect the contrast between the government-induced scandal that is the New Zealand housing market.