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Each month, we use IBM Watson’s tools to assess the sentiment of hundreds of housing news articles about the US housing market. Overseeing that process is Tides analyst Dan Allen. Insightful and observant, he follows the media and helps us keep a pulse on what’s going on out there. Here are his observations on the top housing media trends in August 2017:
August Housing News Summary
Mortgage Default Crisis Result of Prime Loans, Not Subprime
The mass defaults that triggered the 2008 financial crisis have been widely attributed to subprime borrowers, but a new paper in housing news by the National Bureau of Economic Research turns that narrative on its head by demonstrating that prime borrowers, held a disproportionate number of defaulting mortgages during the crisis.
With access to individual-level credit data, NBER also finds that borrowers with mortgages on multiple properties defaulted at higher rates than subprime borrowers despite having much higher credit scores. The paper concludes that the rise in mortgage delinquencies that triggered the financial crisis is primarily attributable to multiple-mortgage real estate investors, not subprime borrowers.
Houston Homeowners Underwater Financially, too
Last week Hurricane Harvey pummeled Houston with rain and caused widespread flooding in the city. While appraising the full damage will take years, it’s already known to be on the scale of Hurricane Katrina and Superstorm Sandy.
Furthermore, the flooding extended well beyond flood plains, meaning that most of the homeowners who suffered flooding do not carry flood insurance. While government flood relief will be available, those programs have historically been capped well below the replacement cost of a home. This will leave the homeowners who suffered the most damage in a precarious financial position and there is concern that ‘walk-away foreclosures’ could crop up as homeowners realize that the cost of repairing their homes exceeds their equity.
Seattle: A Modern Legacy
The American migration trend for the last few decades has been one of suburban exodus, in which the suburbs have consistently outgrown their urban counterparts. Recently this trend has reversed as young professionals and empty nesters have shown renewed interest in dense, walkable city living.
Forbes author Scott Beyer recently teased out the elusive traits that make some cities more attractive for urban living than others. Specifically, the housing news piece highlights ‘legacy cities’ established before the popularization of the automobile, because these cities tended toward denser urban cores and have more robust public transit systems.
While many modern cities have struggled to capture the elusive characteristics of the legacy cities, Seattle is on track to become the first post-automobile city to join their ranks, with one big exception. Seattle has similar anti-development regulations to other modern cities, regulations that make it impossible to build the variety and scale of housing that the legacy cities enjoy.