Transcript Microsoft Office 2003 Deployment Plan

Housing’s Impact on
Local Government Finance
Meeting of the Virginia Government
Finance Officers Association
Virginia Beach, Virginia
June 9, 2011
Virginia Housing Development Authority
Impact of Home Values on
Local Revenue Streams
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Housing is a critical direct
generator of local tax revenues.
•
In FY08, over half (50.7%) of local revenues in
Virginia were derived from real property taxes.*
•
In 2009, 71.2 percent of the assessed real
property in Virginia was single-family homes
and 4.8 percent was multifamily residential
property.**
•
Together, these data show that the assessed
value of residential property accounts for fully
38 percent of local tax bases.
*Staff, Virginia Commission on Local Governments
**John Knapp, Weldon Cooper Center for Public Service, UVA based
on unpublished VA Dept. of Taxation data provided by Josh Silverman
in Nov. 2010
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Local tax bases benefited
substantially from the housing boom.
Increase in Virginia
Taxable Assessed Value by
Type of Property, 2000 to 2006
Agricultural
Commerical
Multifamily
Residential
SingleFamily
Residential
61%
68%
• Rising residential
property values
drove local revenue
increases during the
past decade.
• Unfortunately, this
short-term increase
in local tax bases
was unsustainable.
92%
149%
Source: John Knapp, Weldon Cooper
Center for Public Service, UVA
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Housing is not leading the economy
out of recession as it has in the past.
•
Historically, the lowering of interest rates
during a recession stimulated housing
construction and home purchase, which then
led economic recovery by increasing jobs
and retail sales.
•
This time, the inventory of distressed homes
and tightened lending standards are stifling
housing construction and home sales.
•
In addition, the sharp drop in home equity is
putting a damper on retail sales.
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Lack of a housing recovery is retarding
local economic and revenue growth.
•
With housing as a drag rather than a stimulus, the
economy is struggling to regain momentum.
•
Limited employment growth is reinforcing a vicious
cycle in which:
•
–
Loss of income puts more homeowners into foreclosure
and increases the inventory of distressed properties.
–
Weak home sales reinforce price declines, which in turn
put more homeowners “underwater.”
–
That increases the risk of loan defaults and foreclosures,
and further depresses consumer confidence and
willingness to spend.
Local tax revenues will not revive until more progress is
made in a housing recovery.
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Current Market Trends
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Home sales have fallen to a 13-year low
following the end of the federal tax credit.
• Existing home
sales appear once
again to be
bottoming out.
Virginia Existing Home Sales
4-Quarter Rolling Average
40,000
3rd Qtr 2005
35,000
Federal
Homebuyer
Tax Credit
30,000
- 45%
25,000
20,000
Calendar Year Quarter
-1
-1
11
-1
10
-1
09
-1
08
-1
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06
-1
-1
05
04
-1
-1
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01
-1
00
99
98
-1
15,000
• However, sales
are unlikely to see
any meaningful
rebound until
employment
increases and
home prices fully
stabilize.
Source: Virginia Association of Realtors (VAR)
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Prices are still declining in most markets,
and NoVA’s earlier rebound has ended.
Annual Change in Metropolitan Home Prices
1st Qtr 2010 to 1st Qtr 2011
0.7%
Danville
-0.5%
Blacksburg
Kingsport-Bristol
-0.9%
-1.1%
Charlottesville
-1.5%
Roanoke
-1.6%
Washington, Winchester & Lynchburg
Virginia
VIRGINIA
-2.2%
-4.0%
Hampton Roads
Harrisonburg
Richmond
-5.1%
-5.4%
Source: Federal Housing Finance Agency (FHFA) Home Price Index
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Prices, especially in Northern Virginia,
remain significantly below their peak.
Metropolitan Home Prices Relative to Their Peak
1st Quarter 2011
-4%
-5%
-6%
-8%
-11%
-13%
-14%
-15%
-23%
Kingsport-Bristol
Lynchburg
Blackburg, Danville & Roanoke
Charlottesville
Harrisonburg
Hampton Roads
VIRGINIA
VIRGINIA
Richmond
Washington, DC
-31%
Winchester
Source: Federal Housing Finance Agency (FHFA) Home Price Index
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In most markets, home prices are
correcting to historic affordability norms.
Ratio of Median Home Price to Median Household Income
Northern Virginia Localities
Downstate Metropolitan Areas
Alexandria
Charlottesville
Arlington
Hampton
Roads
Fairfax
Loudoun
Lynchburg
Fauquier
Pre-Boom:
April 2000
Pr. William
Pre-Boom: April
2000
Richmond
Peak of Boom:
2nd-4th Qtrs
2007
Frederick
Peak of Boom:
May 2006
Stafford
Current:
April 2011
Spotsylvania
Roanoke
Current:
1st Qtr 2011
Danville
Traditional
affordability
range
Traditional
affordability
range
0.0
10
1.0
2.0
3.0
4.0
5.0
6.0
0.0
Source: MRIS, Virginia Association of Realtors (VAR)
and U.S. Census Bureau
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1.0
2.0
3.0
4.0
5.0
Experience from past recessions shows that
inflation-adjusted prices recover very slowly.
Washington
MSA
Hampton Rds
MSA
(thru 2011-Q1)
Real Decline in Prices:
-20.9%
-27.3%
Peak to Trough:
7.8 Yrs.
4.3 Yrs.
Time to Regain Loss:
12.7 Yrs.
?
Real Decline in Prices:
-14.5%
-15.5%
Peak to Trough:
7.0 Yrs.
4.3 Yrs.
Time to Regain Loss:
15.2 Yrs.
?
-9.8%
-20.6%
Peak to Trough:
5.5 Yrs.
4.0 Yrs.
Time to Regain Loss:
12.1 Yrs.
?
Real Decline in Prices:
Richmond MSA
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Current
Late 80's Early 90's
Housing Downturn:
Source: Federal Housing
Finance Agency (FHFA) Home
Price Index
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Non-traditional lending created a layer of
artificial pricing that will not be recouped.
Change in Existing Home Prices, Washington, DC MSA
Seasonally Adjusted Tiered Home Price Index (January 2000=100)
350
300
Surge in
subprime
and alt-A
lending
250
200
150
Decade of flat home values
100
50
Lower Price Tier (<$298,049)
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Middle Price Tier ($298,049 to $475,517)
Source: S&P Case-Schiller Home Price Index
Tier price breaks as of March 2011
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Higher Price Tier (>$475,517)
Impact of Foreclosures
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Early stage defaults are slowly abating,
as is the surge in 90+ day delinquencies.
Virginia Delinquency Rates
4-Quarter Rolling Averages
3.5%
3.0%
30 Day Delinquencies
2.5%
2.0%
90+ Day Delinquencies
1.5%
1.0%
60 Day Delinquencies
0.5%
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-1
11
-3
20
20
10
-1
10
-3
20
09
-1
20
09
-3
Source: Mortgage Bankers Association (MBA)
20
08
-1
20
08
-3
20
07
-1
20
20
07
-3
06
-1
20
06
-3
20
05
-1
20
05
-3
20
04
-1
20
04
-3
20
03
20
20
03
-1
0.0%
In contrast, initial progress in resolving
foreclosures has been set back.
Virgina Loans in Foreclosure
as a Share of Loans Serviced
2.50%
2.00%
1.50%
1.00%
0.50%
Source: Mortgage Bankers Association (MBA)
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-1
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-3
20
10
-1
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20
10
-3
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09
-1
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-3
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08
-1
08
-3
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07
-1
20
07
-3
20
20
06
-1
20
06
-3
20
05
-1
05
-3
20
04
-1
20
04
-3
20
03
20
20
03
-1
0.00%
The unprecedented volume of foreclosure
activity has lengthened processing time.
• Accelerated foreclosure
processing in the 3rd Qtr.
of 2010 precipitated legal
issues that resulted in
temporary processing
moratoria by national
mortgage servicers.
Average Months to
Process Foreclosures
(Ratio of Foreclosure Inventory
at End of Quarter to Average
Monthly Foreclosure Starts)
14
12
U.S.
10
8
6
Virginia
4
2
Sharp drop in 3rd Qtr. 2010
-1
20
11
-1
20
10
-1
20
09
-1
20
08
-1
20
07
-1
20
06
-1
05
-1
20
04
20
20
03
-1
0
• Nationally, in April 2011,
loans in foreclosure, on
average, had been
delinquent for 567 days,
up from 319 days two
years ago.*
Source: Mortgage Bankers Association (MBA)
*LPS Analytics
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Northern Tier
Foreclosure completions have moderated
in the inner part of Northern VA (PD8).
Now, the highest activity is in the
outer part of NoVA, Hampton
Roads and Richmond.
Inner
Outer
Foreclosure Completions* March 2011
Northern
Northern Tier
Tier ---- Outer
Outer
0.45%
Hampton Rds-Chesapeake Bay
0.41%
Greater Richmond
0.38%
VIRGINIA
VIRGINIA
0.32%
Northern
Northern Tier
Tier ---- Inner
Inner (PD
(PD 8)
8)
0.30%
Roanoke-Blacksburg-Lynchburg
0.15%
Charlottesville-Central Valley
0.14%
Southern Tier
0.08%
*Trustee sales
and lender
repossessions
Share of Homes with a Mortgage
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Source: RealtyTrac and Census Bureau
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To date, the slowdown in foreclosure
completions has had limited impact on
the number of lender-owned homes.
Virginia Inventory of Lender-Owned Homes
25,000
20,000
15,000
10,000
5,000
Northern Tier
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Downstate Regions
Source: RealtyTrac
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Timely disposition of the substantial
lender-owned inventory is proving difficult,
and is undermining market recovery.
• Investor sales are rising, but remain insufficient to
substantially reduce lender-owned inventories.
• The increased market shares of distressed sales is
undercutting prices and keeping traditional buyers
and sellers on the sidelines.
• A renewed decline in home sales is reinforcing price
weakness and keeping large numbers of
homeowners “under water.”
• Any substantial further drop in prices would risk
renewed increases in mortgage defaults and a set
back in the limited progress in reducing foreclosures.
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Investor sales are rising, but are not
substantially reducing lender inventories.
Cash Sales Share of Total Existing Home Sales
Northern Tier Region
20%
Feb '09
15.5%
Jan '10
17.1%
Feb '11
18.8%
15%
10%
5%
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0%
Apr '06
3.1%
Source: MRIS
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Inventories have risen year over year
except in Northern Tier markets where
there have been modest reductions.
Inventory of Lender-owned Homes
Northern Tier -- Outer
Northern Tier -- Inner
Hampton Rds-Chesapeake Bay
VIRGINIA
Virginia
Greater Richmond
Roanoke-Blacksburg-Lynchburg
May 30, 2010
Charlottesville-Central Valley
May 30, 2011
Southern Tier
0.0%
0.5%
1.0%
1.5%
Share of Homes with a Mortgage
Source: RealtyTrac and Census Bureau
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2.0%
2.5%
Future Outlook
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Demographic change will play a
dominate role in housing’s recovery.
• The housing downturn has focused attention on
the impact of mortgage lending on home
construction and overall market health.
• Less attention has been paid to the critical role
that shifting demographics play in shaping the
magnitude and nature of housing demand.
• We are now in a new a market cycle that will be
heavily influenced by large shifts in housing
demand driven by demographic change.
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Four broad stages of life drive
changes in housing choices.
• Young Households (under age 35)
Need affordable rental housing and starter homes
• Middle Age Households (ages 35-54)
Tend to be larger (need more space) and/or more
affluent—many are able and willing to “trade up”
• “Empty Nesters” and Younger Retirees (ages 55-74)
Predominately homeowners who mostly choose to age in place
• Older Seniors (age 75 and older)
Maintenance and use of their existing home may become
burdensome—If so, then they may seek alternative senior
housing options
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The coming housing cycle will look
different from the one recently ended.
• The differential size of successive generations
causes differing types of need to dominate in
each housing cycle.
• In the cycle just ended, demand was dominated
by affluent, middle age Baby Boomers who
“traded up” to larger homes.
• The number of middle age households peaked in
2005, and will now decline steadily over the next
15 years as aging Boomers are replaced by the
much smaller Baby Bust (“Generation X”).
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The “Trade-Up” Era is Over.
Young Renters &
1st-Time Homebuyers
Middle Age
Trade-up Homebuyers
213,561
227,529
Empty Nester & Younger
Senior Homeowners
Older Seniors w/
Special Needs
Estimated Population
Change 1990-2005
205,278
140,322
99,502
39,604
26,828
32,336
32,297
60-64
65-69
70-74
75-79
189,787
192,947
13,878
20-24
25-29
-71,103
118,488
30-34
-57,707
35-39
40-44
45-49
50-54
55-59
Projected Population
Change 2005-2020
48,547
50,599
80-84
85+
167,928
119,900
109,840
65,937
63,409
30,955
17,931
20-24
25-29
30-34
35-39
40-44
-68,932
26
42,747
45-49
50-54
55-59
60-64
65-69
70-74
75-79
32,013
80-84
-53,235
Source: U.S. Census and estimates based on Census Bureau and VEC
Virginia population projections
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85+
We are now
in a new
market cycle in
which young
households,
empty nesters
and younger
retirees will
dominate.
Today’s housing stock is not
adequate to meet emerging needs.
• Relatively little starter home and new rental construction
occurred in the recent housing cycle.
• Except in the fastest growing regions, existing apartments
and starter homes that were vacated by Baby Boomers
“trading up” to newly built larger homes, served much of
the needs of Generation X.
• Now, as Generation X replaces Baby Boomers in the
“trade up” market, and Generation Y forms independent
households, we face an over-supply of larger “trade up”
homes and a shortage of smaller affordable units.
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Quality, affordable rental housing
will be especially needed.
Share of Virginia Households
that Rent by Age
63%
58%
2006
26%
2009
29%
21% 22%
17% 17%
UnderAge 35
28
Age 35-54
Age 55-74
• A large and growing majority of
young households are renters,
while middle age and older
households are mostly owners.
• In the past housing cycle, a
large share of rental investment
involved the upgrade of existing
properties.
• In the coming cycle, a larger
net increase in rental units will
be needed in order to
accommodate the growth in
young households.
Age 75 and
Older
Source: American Community Survey
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Generation Y will likely have more
difficulty achieving homeownership.
Average credit card debt among
households age 25 to 34 with
credit card debt (2004 dollars)
• Over the past two decades,
young households have incurred
substantial debt compared to
previous generations.
• Credit card debt has risen
dramatically, and many are
burdened by student loans.
+52%
• For the Class of 2011, student loan
debt is estimated to average
$22,900.
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$2,873
$4,358
1989
2004
• Significant tightening of credit
standards and down payment
requirements will likely delay home
purchase by Generation Y despite
lower home prices.
Source: Survey of Consumer Finance,
1989 and 2004
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Housing affordability will continue
to be an issue in a housing recovery.
Median income by age as a share
of overall median household income
132%
115%
112%
Overall Median
52%
• Now, demand is
shifting to age
groups with more
limited means.
75+
• The current surplus
of “trade up” homes
is mismatched with
future needs.
95%
74%
54%
Under 25 25 to 34
35 to 44
45 to 54
55 to 64
65 to 74
• In the past housing
cycle, demand was
concentrated in the
age group with the
highest income.
Age Group
30 Source: 2000 Census
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We continue to face housing challenges that
require strong public/private partnerships.
• Recovery of local housing markets and real estate tax
revenues will require new public land use strategies
that facilitate the private development of affordable
rental and ownership opportunities to meet emerging
demand.
• The public sector must also help the private market
address the housing inventory imbalances resulting
from demographic shifts, the overhang of foreclosed
inventories, and the ongoing need to revitalize aging
housing stock and neighborhoods.
• Finally, federal, state and local officials will need to
work in partnership to ensures the affordability of
housing for all people in a manner that is fiscally sound
and builds more sustainable local communities.
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