2023 Q2-Residential Housing Market Review.pdf

Adkins Capital Management
“Helping Prospective Home Buyers Make A Prudent Home Purchase Decision”
U.S. Residential Housing Market Review
Adkins 60-City Home Price Index Analysis
Second Quarter, 2023

PRESENTATION CONTENTS
➢ The purpose of this presentation is for the founder of Adkins Capital Management
(ACM) to provide an overview and assessment of:
➢ The events and trends that have transpired in the U.S. residential housing market
for the second quarter of 2023:
➢ A review of “The State of The Nation’s Housing” report by the Joint
Center for Housing Studies (JCHS) of Harvard University.
➢ The monetary policy actions of the Federal Reserve to help curtail the
impact of inflation on the U.S. economy.
➢ The home price level for a select group of cities that make up the Adkins 60-City
Home Price Index:
➢ Top Five Overpriced Cities in the U.S.; and
➢ Top Five Underpriced Cities in the U.S.
➢ Conclusion.
➢ Resources for Prospective Home Buyers.
➢ Important Disclosures.
1
Adkins Capital Management LLC. 2023 Q2 – Residential Housing Market Review

➢ Privately owned and independently operated company.
➢ Exclusive focus on residential real estate.
➢ ACM is not affiliated with any parties associated with
the residential housing industry.
➢ Our mission is to bridge the gap in the residential
housing market, where deficiencies in education,
public policy, regulation, product structure, and
personnel have created an environment where
prospective home buyers need objective information
and useful analytical tools in order to make a prudent
home purchase decision.
Adkins Capital Management LLC. 2
➢ More than 15 years of real estate analysis experience, more than 10 years of
institutional investment consulting experience, and more than eight years of
freelance financial writing experience.
➢ Author of more than 25 published articles, including publications by Forbes,
Investor’s Business Daily, Yahoo, Investopedia, Financial Edge, and more than
230 news organizations worldwide.
OVERVIEW OF ACM FOUNDER AND CORPORATION
2023 Q2 – Residential Housing Market Review

3
OVERVIEW OF HOME OWNERSHIP
“Home equity levels hit new highs while
delinquency and foreclosure rates remained low”

4
Adkins Capital Management LLC.
JCHS: OVERVIEW OF HOME OWNERSHIP
➢ During the second quarter of 2023, the annual release (since 1988) of “The State of The Nation’s Housing” report by the
Joint Center for Housing Studies (JCHS) of Harvard University provided a wealth of information pertaining to the U.S.
residential housing environment. The following is an executive summary of our pertinent findings:
➢ The total number of homeowner households was approximately 85 million.
➢ The national homeownership rate was 65.8 percent.
➢ The number of US households grew by 1.6 million in 2022.
➢ According to the Federal Reserve, homeowner equity in the U.S. totaled $31.0 trillion in the fourth quarter of 2022, up 33
percent ($7.7 trillion) in real terms since the start of the pandemic.
➢ Despite declining home prices due to rising interest rates, aggregate equity remains up $3.5 trillion year-over-year
nominally and is nearly 2.5 times the aggregate mortgage debt level.
➢ The average homeowner had $270,000 in equity in their home as of the fourth quarter of 2022.
➢ Many homeowners thrived in 2022, with home equity levels hitting new highs and delinquency and foreclosure rates
remaining low.
➢ According to the JCHS report, as long as interest rates remain elevated, home price growth will likely continue to slow.
However, prices are unlikely to plummet like they did during the Great Recession thanks to the combination of the strong
job market, the continued aging of millennials into peak homebuying years, the dearth of housing available for purchase,
and the low foreclosure rate.

5
HOUSING COST IMPLICATIONS
“There are more than 19 million cost-
burdened homeowners in the U.S.”

6
JCHS: OVERVIEW OF THE HOUSING COSTS BURDEN
➢ The housing cost burden for homeowners (i.e., the number of homeowners spending more than 30 percent of their
income on housing costs) is increasing at an alarming rate.
➢ Between 2019 and 2021, the number of cost-burdened homeowners jumped by 2.3 million households, the
largest increase since the height of the housing boom in 2005–2007.
➢ As a result, 19.0 million homeowner households, or 22.7 percent, were burdened by monthly housing costs in
2021;
➢ Of the 19 million costs burdened households, 8.7 million (10.4 percent of all homeowners) had housing costs
that exceeded 50 percent of their income.
➢ Homeowners with low incomes were only one of the many vulnerable populations whose burden rates
increased between 2019 and 2021.
➢ Cost burdens affected a quarter of all homeowners age 65 and over (26 percent);
➢ more than a third of all single-person (39 percent) households were cost burdened; and
➢ 36% of single-parent homeowner households were cost burdened.

7
OVERVIEW OF HOUSING SALES
“Rising interest rates hastened home sales”

8
JCHS: OVERVIEW OF HOUSING SALES
➢ Higher interest rates have pushed homeownership out of reach for millions of potential homeowners at a time
when large numbers of millennial households are at prime homebuying ages.
➢ According to the FHFA National Mortgage Database, nearly two-thirds of outstanding residential mortgages
carry an interest rate of less than 4 percent, including one-quarter of mortgages with interest rates below 3
percent—significantly lower than the 6.75 percent average on a 30-year fixed-rate mortgage at the end of
2022.
➢ In 2022, only 641,000 new homes sold, down 17 percent from the year prior and well below the pandemic peak of
822,000 in 2020.
➢ The median sales price for newly built single-family homes was $457,800.
➢ Existing home sales dropped 18 percent in 2022 to 5.0 million, including a 17 percent decline in single-family home
sales, to 4.5 million, and a 23 percent decline in condo/co-op sales, to 546,000 units.
➢ Seasonally adjusted existing home sales declined just 4 percent in the first quarter of 2022 relative to the first
quarter one year earlier, but 32 percent in the fourth quarter of that same year.
➢ Late 2022 experienced the first decline in real home prices in over a decade.
➢ Investor purchases remained a high share of total sales because owner-occupant homebuying fell just as sharply.
➢ Investors bought 26 percent of single-family homes in the fourth quarter of 2022, just shy of the record-high
28 percent share recorded in early 2022 and well above the 16 percent share averaged in the three years
immediately preceding the pandemic.
➢ According to Core Logic, purchases of single-family homes by investors who simultaneously owned three or
more properties within the past 10 years declined by 25 percent year-over-year in the fourth quarter of 2022.

9
OVERVIEW OF HOUSING SUPPLY
“There is a significantly chronic housing
shortage, particularly for affordable housing,
but multi-family housing production remains
strong”

10
JCHS: OVERVIEW OF HOUSING SUPPLY
➢ Housing production declined modestly in 2022, driven by a sharp slowdown in single-family homebuilding.
➢ There is a significant housing shortage, and affordable housing programs pale in comparison to the need for housing.
➢ Despite historically low levels of supply, higher interest rates have sparked a slowdown in the construction of new single-
family homes.
➢ At 43 years of age, the median home in 2021 was the oldest it has ever been, up from 27 in 1991.
➢ The number of newly started housing units fell from 1.60 million in 2021 to 1.55 million in 2022, a small but significant 3.0
percent decline in the context of the nation’s housing shortfall. Similarly, the number of permitted units declined 4.1 percent
to 1.67 million in 2022.
➢ Rising cost of land, labor, and building materials has emerged as a key challenge for homebuilders and developers and
impedes efforts to build the amount and variety of housing needed.
➢ The Federal Reserve Bank of Philadelphia estimates that the nation’s housing stock needs repairs amounting to $149
billion, including $57 billion for homes occupied by households with lower incomes.
➢ Further jeopardizing homes is the increasing damage from climate-related disasters.
➢ Additional lower-cost housing needs to be built, but expanding development will require zoning reform to support a broader
range of housing types and investments in off-site construction methods that could reduce development costs.
➢ In contrast to single-family homebuilding, multifamily construction continued to rise in 2022 to the highest number
since the mid-1980s.
➢ The number of multifamily starts rose 15.5 percent from an already-high 474,000 units in 2021 to 547,000 units in
2022—the highest level since 1986. The seasonally adjusted rate of multifamily starts remained strong throughout the
year, averaging 540,000–550,000 units in both the first and the second halves of the year.

11
FEDERAL RESERVE POLICY ANALYSIS
Ongoing hawkish monetary policy via higher interest rates set
forth to curb inflation
Why was the reserve requirement cut to 0% in 2020 and when
will it be raised to help curb inflation?

12
MONETARY POLICY ACTIONS OF THE FEDERAL RESERVE
➢ During the second quarter of this year, the Federal Reserve continued to convey that it is primarily concerned about
reducing rampant inflation levels in the U.S. by implementing hawkish monetary policy.
➢ Accordingly, the Federal Reserve raised the target range for the federal funds rate from 4.75% - 5.0% in
March to a range of 5.0% - 5.25% in May and then held that level for the remainder of the quarter.
➢ To follow suit, the national average mortgage loan interest rate for a 30-year fully-amortized fixed rate loan began
the quarter at 6.93% and ended the quarter at 7.625%.
➢ The national average mortgage loan interest rate for a 30-year, fully-amortized fixed rate loan reached an all-
time low of 2.67% on December 17, 2020, and the all-time high of 18.63% in October of 1981.
➢ In light of the Fed’s policy position, it is perplexing to understand why a major monetary policy feature that is at the
discretion of the Federal Reserve is not being utilized or even discussed in order to combat inflation in the U.S.
➢ For more than a decade, prior to March 26, 2020, the reserve requirement was fixed at 10%. At that level, the
amount of money in circulation would have been curtailed to a level that would have helped mitigate
inflation. Moreover, such policy strengthened the financial solvency of the U.S. banking system.

13
MONETARY POLICY ACTIONS OF THE FEDERAL RESERVE
➢ However, on March 26, 2020, the Federal Reserve lowered the reserve requirement from 10% to 0% for all depository
institutions. This policy provision dramatically raised the amount of money available to be in circulation, which in
turn helped exacerbate inflation. To make matters worse, such policy weakened the solvency of the U.S. banking
system.
➢ With that in mind, it would be prudent monetary policy to raise the reserve requirement back to 10% in order to help
curtail inflation, examine its impact on the inflation level, and if still necessary, continue raising the reserve
requirement until inflation is brought down to an acceptable level. Such a position would also allow the Fed to
implement a more dovish monetary policy in terms of interest rates, which in turn would help bolster the U.S. housing
market, help the GSEs exit Conservatorship, and strengthen the financial integrity of the banking system!
➢ Finally, it is important to note that it is prudent policy to have a reserve requirement of at least 10%, because it will
mitigate the need for the Federal Reserve’s stress test, which is inadequate for measuring the stability of the U.S.
banking system in an environment of rising inflation, rising interest rates, and recession.
➢ Simply explained, without a material reserve requirement level, the impact of a prolonged inverted yield curve could
wreck havoc on the U.S. banking system, because the banking system’s business model does not work in an
environment where it has to borrow money on a short-term basis at high interest rates and lend money on a longer-term
basis at lower interest rates.

ADKINS RESIDENTIAL HOME VALUATION ANALYZER
HOME PRICE-LEVEL ANALYTICAL METHODOLOGY
➢ JUSTIFIED MORTGAGE LOAN INTEREST RATE
➢ Represents the cost of debt for a 30-year fully-amortized fixed-rate mortgage
loan that equates the median home price level for a city with the median
household income level for the city.
➢ Based on the assumption that 28% of household income is the largest amount of
money that should be spent in order to repay the principal and interest costs for a
30-year fully-amortized fixed-rate mortgage loan.
14
➢ JUSTIFIED PERCENTAGE OF HOUSEHOLD INCOME
➢ Represents the percentage of pre-tax household income that would have to be
spent by the people that live in a city in order to justify the relationship between
the median household income level for the city and the median home price level
for the city.
➢ Based on the month-ending national average mortgage loan interest rate for a
30-year fully-amortized fixed-rate mortgage loan.
FINANCED-BASED ANALYTICAL METHODOLOGY

15
COMPREHENSIVE HOUSING
ANALYSES
Homes are Overpriced in 54 Cities among the
Adkins 60-City Home Price Index

TOP FIVE OVERPRICED CITIES IN THE U.S.
➢ Based upon the justified percentage of household income amount, 54 cities that make up the Adkins 60-City
Home Price Index were classified as overpriced for the second quarter of 2023.
➢ Honolulu, Los Angeles, San Diego, San Francisco, and Portland, Maine were identified as the five most overpriced
cities in the index. It is important to note that San Diego and San Francisco had the same justified percentage of
household income amount.
➢ In terms of a relative price-level analysis, it is not possible to justify the home price level for the top five overpriced
cities by reducing the 30-year fixed rate mortgage loan interest rate from 7.625% to 0.0%.
➢ In order to classify the homes in the top five overpriced cities as underpriced, it would need to be deemed prudent by
prospective home buyers to spend more than the respective justified percentage of household income amounts.
16
Adkins 60-
City Home
Price Index
Median
Household
Income
Level
Median
Home Price
Level
Justified
Mortgage
Loan
Interest
Rate
Justified
Percentage
of
Household
Income
Required
Median
Household
Income
Level
Justified
Home Price
Level
Honolulu $83,946 $1,050,000 None >100% $317,734 $277,412
Los Angeles $77,456 $950,000 None >100% $287,474 $255,965
San Diego $89,457 $1,000,000 None 95% $302,604 $295,624
San Francisco $126,187 $1,400,000 None 95% $423,645 $417,004
Portland, ME $66,109 $705,000 None 91% $213,336 $218,467

TOP FIVE OVERPRICED CITIES IN THE U.S.
➢ In order to justify the median home price level for each city, the median required household income level would
need to increase to a level within the respective range of $213,336 and $423,645.
➢ Based on the median household income level, the quarter ending national average mortgage loan interest rate, and
the assumption that no more than 28% of pre-tax household income should be spent in order to repay the principal
and interest costs of a mortgage loan, the justified home price level for the top five overpriced cities fell within
the respective range of $218,467 and $417,004.
➢ It is important to note that given the current interest rate environment, the justified home price level for the
top four overpriced cities is lower than their required median household income level. Moreover, the lack of
congruence between the median home price level and the justified home price level falls within the range of
3.36x to 3.79x, which is likely due to the preponderance of homes being owned by people that do not earn
their income in the city in which the homes are located.
➢ Prospective home buyers should use the Adkins Residential Home Valuation Analyzer in order to assess the level of
overpricing of homes in their community.
17
Adkins 60-
City Home
Price Index
Median
Household
Income
Level
Median
Home Price
Level
Justified
Mortgage
Loan
Interest
Rate
Justified
Percentage
of
Household
Income
Required
Median
Household
Income
Level
Justified
Home Price
Level
Honolulu $83,946 $1,050,000 None >100% $317,734 $277,412
Los Angeles $77,456 $950,000 None >100% $287,474 $255,965
San Diego $89,457 $1,000,000 None 95% $302,604 $295,624
San Francisco $126,187 $1,400,000 None 95% $423,645 $417,004
Portland, ME $66,109 $705,000 None 91% $213,336 $218,467

TOP FIVE UNDERPRICED CITIES IN THE U.S.
18
➢ Based upon the justified percentage of household income amount, six cities that make-up the Adkins 60-City Home
Price Index were classified as underpriced for the second quarter of 2023.
➢ Detroit, Cleveland, Jackson, Des Moines, and Huntington were identified as the top five most underpriced cities in the
index. Birmingham, Alabama was identified as the sixth most underpriced city in the index, because its justified
percentage of household income amount matched Des Moines (28%), but its justified mortgage loan interest rate was
lower at 6.95%.
➢ In order to classify homes in the top five underpriced cities as overpriced:
➢ The national average mortgage loan interest rate would have to increase from 7.625% to more than the respective
justified mortgage loan interest rate amount for each city (7.2% - 19.7%); or
➢ It would have to be deemed imprudent by prospective home buyers to spend as much as the respective justified
percentage of household income amount for each city in order to repay the costs of a mortgage loan.
Adkins 60-City
Home Price Index
Median
Household Income
Level
Median Home
Price Level
Justified
Mortgage Loan
Interest Rate
Justified
Percentage of
Household Income
Detroit, MI $67,153 $79,000 19.70% 10%
Cleveland, OH $62,315 $112,500 15.35% 16%
Jackson, MS $39,969 $100,000 10.75% 22%
Des Moines, IA $74,208 $199,900 9.85% 23%
Huntington, WV $34,351 $118,290 7.20% 30%

CONCLUSION
➢ Given the events that have transpired in the residential housing market, and
taking into account the fact that buying a home will likely be the largest single
financial transaction that prospective home buyers will ever make, and the bulk
of their net worth will likely be tied up in their home, prospective home buyers
should subscribe to use the Adkins Residential Home Valuation Analyzer in
order to accurately assess:
➢ the level of underpricing or overpricing of homes in their community;
➢ the largest amount of money they should spend in order to purchase a home;
➢ the amount of money they would need to earn on an annual basis in order to
be able to afford to purchase a specific home;
➢ total home ownership costs expressed as a percentage of household income;
and
➢ how much a home would need to appreciate in value each year in order to
offset the costs associated with owning the home.
➢ By analyzing residential real estate from these perspectives, prospective home
buyers should be able to make a prudent home purchase decision.
19

➢ ACCESS THE ADKINS RESIDENTIAL
HOME VALUATION ANALYZER
➢ REVIEW THE ADKINS 60-CITY HOME
PRICE INDEX
➢ ACCESS THE STRATEGIC RETIREMENT
PLAN SAVINGS CALCULATOR
21
RESOURCES FOR PROSPECTIVE HOME BUYERS
➢ WATCH OUR MOVIE CATALOG OF QUARTERLY RESIDENTIAL HOUSING
REVIEWS
➢ WATCH OUR COMPREHENSIVE HOUSING VALUATION METHDOLOGY
MOVIE PRESENTATIONS
➢ WATCH OUR STRATEGIC RETIREMENT PLAN SAVINGS METHODOLOGY
MOVIE PRESENTATION
➢ WATCH OUR ANIMATED MOVIE PRESENTATIONS
➢ CONTACT ADKINS CAPITAL MANAGEMENT IN ORDER TO DISCUSS
RESIDENTIAL HOUSING ANALYSIS QUESTIONS

THANK YOU!
residentialrealestateanalysis.com
Segments Produced at the New York Public Library & Business Library
Borough of Manhattan, 5TH Avenue and Madison Avenue Locations
New York City, NY, U.S.A.
Contents of this report are the property of Adkins Capital Management. No part of this report may be reproduced,
redistributed, displayed, or transmitted without the written consent from representatives of Adkins Capital Management.
Adkins Capital Management LLC. 20
IMPORTANT DISCLOSURES

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