Housing markets in the U.S. are showing signs of recovering, according to "The State of the Nation’s Housing" report released by the Joint Center for Housing Studies of Harvard University.
Rental markets are recovering thanks to sharp drops in construction and an increase of more than 4.4 million renters since 2005. Rental vacancy rates are falling, rents are increasing and multi-family construction is up solidly, while, in contrast, homeownership rates in the U.S. continue to fall.
“While still in the early innings of a housing recovery, rental markets have turned the corner, home sales are strengthening and a floor is beginning to form under home prices,” says Eric S. Belsky, managing director of the Joint Center.
“With new home inventories at record lows, unless the broader economy goes into a tailspin, stronger sales should further stabilize prices and pave the way for a pickup in single-family housing construction over the course of 2012.
“Surveys consistently find that the overwhelming majority of young adults plan to own a home in the future, but many would-be buyers have stayed on the sidelines waiting for the job outlook to improve and house prices to stop falling. But as markets tighten, these fence-sitters may begin to take advantage of today’s lower home prices and unusually low mortgage rates. With rents up, home prices sharply down, and mortgage interest rates at record lows, monthly mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s,” Belsky says.
However, the report cautions that the housing market's backlog of nearly 2 million homes in the foreclosure process will cause distressed home sales to remain high and could cause price increases to remain in places hardest hit by foreclosures. At the same time, growth may remain slowed due to the more than 11 million homeowners who owe more on their mortgages than their homes are worth and have no home equity to borrow against to fund major remodels, so cannot sell without incurring a loss.
“What the housing sector needs is a sustained increase in jobs to bring household growth back to its long-term pace and spur demand,” says Chris Herbert, director of research at the Joint Center. “The country has seen new household formations fall well below expected long-run rates due to a falloff in young adults being able to move out on their own and a slowdown in net immigration. Even in 2011, fewer than 700,000 households were added and that’s well below the 1.2 million or more annual trend expected under more normal economic conditions.”
Additionally, the inability of many homeowners to refinance, combined with rising rents and high unemployment, has lifted the number of households spending more than half their income on housing to record highs. Between 2007 and 2010, the number of U.S. households paying more than half of their income for housing rose by a 2.3 million, bringing the total to a record 20.2 million.
“While improving housing markets will benefit the economy and many existing homeowners, it will also increase the cost pressure on others,” Herbert says. “Even as the recovery takes hold in many markets across the country, we cannot lose sight of the long-run challenge of providing affordable housing for the most vulnerable, nor forget the damage done to foreclosure-ridden neighborhoods, which will take years to heal.”
The full report can be downloaded at http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2012.pdf.