The Housing and Mortgage Markets: 2008

Karl E. Case

March 12, 2008

OFHEO House Price Index - U.S.

0

50

100

150

200

250

300

350

400

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

Date

Re

al I

nd

ex

LAND AND STRUCTURE VALUES: RESIDENTIAL REAL ESTATE 1975-2005Billions of Dollars

Dates* Residential Assets

Replacement-cost of

Structure

Land Land as % of Total

Residential Assets

1975 2019.42 1727.68 291.74 14.45

1980 4094.16 3392.44 701.72 17.14

1985 6337.96 4421.46 1916.5 30.24

1990 8702.66 5937.15 2765.51 31.78

1995 10339.12 7646.33 2692.79 26.04

2000 14772.31 10436.47 4335.84 29.35

2005 24847.34 15386.35 9460.99 38.08

*:As of 4th QuarterSource: Federal Reserve System Flow of Funds Data and author’s calculations, see text.

S&P Case Shiller Index – Changes since 2000 Metro Area Peak % change since

peak % Change 2000 -Dec. 2007

San Diego Nov. 2005 -19.1 +102 Detroit Dec. 2005 -18.7 +3 Phoenix June 2006 -17.5 +87 Miami Dec. 2006 -17.5 +132 Las Vegas Aug. 2006 -16.5 +96 Tampa July 2006 -15.9 +100 Los Angeles Sept. 2006 -14.9 +133 San Francisco May 2006 -13.3 +89 Washington D.C. May 2006 -13.3 +118 Boston Sept. 2005 -9.8 +65 Minneapolis Sept. 2006 -9.2 +55 Cleveland July 2006 -9.2 +12 Denver Aug. 2006 -6.6 131 New York June 2006 -6.5 +102 Chicago Sept. 2006 -5.1 +60 Atlanta Aug. 2006 -4.3 +21 Seattle July 2007 -3.9 +85 Dallas Aug. 2006 -3.9 +21 Charlotte Aug. 2007 -2.9 +32 Portland Sept. 2007 -1.7 +80 Composite 10 June 2006 -11.4 +101 Composite 20 July 2006 -10.5 +85

Ohio Constant Quality House Price/Personal Income Per Capita

0

1

2

3

4

5

6

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

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2003

2004

2005

2006

2007

Date

Med

ian

valu

e/pc

inco

me

Massachusetts Constant Quality House Price/Personal Income Per Capita

0

1

2

3

4

5

6

7

8

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Date

Med

ian

val

ue/

pc

inco

me

California Constant Quality House Price/Personal Income Per Capita

0

2

4

6

8

10

12

14

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Date

Med

ian

valu

e/pc

inco

me

Florida Constant Quality House Price/Personal Income Per Capita

0

1

2

3

4

5

6

7

8

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Date

Med

ian

valu

e/pc

inco

me

Supply ofExisting Units

DD’

Number of Units

Price

Added to Inventory

Sticky Price

Downward stickiness leads to a sharp decline in the number of existing home sales and a rapid rise in inventory of unsold homes. Observed Transactions will not reflect current equilibrium.

The Existing Home Market

Housing Starts

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

1972-Jan

1974-Jan

1976-Jan

1978-Jan

1980-Jan

1982-Jan

1984-Jan

1986-Jan

1988-Jan

1990-Jan

1992-Jan

1994-Jan

1996-Jan

1998-Jan

2000-Jan

2002-Jan

2004-Jan

2006-Jan

Date

Th

ou

san

ds

Gross Residential Investment and Housing Starts in Down Cycles 1973-2007

Cycle I* Peak 1973:1 Trough 1975:1 Percent Change

Gross Residential Investment (billions of $ 2000)

$310.6

$189.2

-39%

Percent of GDP 5.7% 3.6% Housing Starts (millions of units)

2.481

0.904

-63%

Cycle II* Peak 1978:3 Trough 1982:3 Percent Change

Gross Residential Investment (billions of $ 2000)

$356.6

$182.9

-49%

Percent of GDP 5.5% 3.5% Housing Starts (millions of units)

2.141

0.927

-61%

Cycle III* Peak 1986:4 Trough 1991:1 Percent Change

Gross Residential Investment (billions of $ 2000)

$355.9

$250.0

-30%

Percent of GDP 5.6% 3.5% Housing Starts (millions of units)

2.260

0.798

-65%

Cycle IV* Peak 2006:1 2007:4 Percent Change

Gross Residential Investment (billions of $ 2000)

$607.2

$432.7

-29%

Percent of GDP 5.5% 3.7% Housing Starts (millions of units)

2.265

1.006

-56%

*Peak and trough dates are for gross residential investment. For housing starts, peak and trough dates are: Cycle I: January 1973 – February 1975 Cycle II: December 1977 – August 1981 Cycle III: February 1984 – January 1991 Cycle IV: January 2006 – December 2007 Source: US Bureau of the Census Construction Reports, January 17, 2008; Board of Governors of the Federal Reserve System, Flow of Funds Data, Table F10, Line 19; Bureau of Economic Analysis, GDP release January 30, 2008. Table 1.1.5