Conditions that could support a housing recovery are taking shape now, but job losses, falling home prices and tight lending standards mean demand for housing remains "remarkably low," according to a new Harvard University report out today.
Home-price declines and low interest rates have restored housing affordability in many markets, and a dramatic reduction in home construction should eventually improve the balance between housing supply and demand, the 2009 State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University concludes.
Sales of distressed properties, temporary first-time buyer tax credits, and low interest rates have helped stabilize sales. But as homes continue to enter the foreclosure process in record numbers, the number of vacant housing units for rent, sale or being held off the market is at record highs, putting pressure on prices.
"We do see some signs of stabilization, more in home sales and less so in prices," said Nicolas Retsinas, director of the Joint Center. "The macro forces pushing back against recovery include job losses and foreclosures, which are adding to inventory and motivating sellers to keep lowering their prices."
The report estimates 5.7 million jobs were lost between December 2007 and April 2009, and another 11 million Americans were working part time involuntarily or had stopped looking for work altogether. Gains in homeownership rates made during the boom have been erased, falling from 69 percent in 2004 to 67.8 percent last year, a level last seen in 2001.
Although housing is becoming more affordable now, the report also noted that the number of households paying more than half their incomes for housing jumped from 13.8 million in 2001 to 17.9 million in 2007.
How prospective buyers respond when home prices stop falling and the economy improves will determine whether and when the homeownership rate turns up again, the report said. In the near term, demographic forces favor the rental over the for-sale market. …CONTINUED
But the opportunity to snag a home at a bargain price could lure many to buy homes, even if credit remains relatively tight. Challenges to be overcome include reviving mortgage lending that lacks federal guarantees, moving Fannie Mae and Freddie Mac out of conservatorship, and overhauling regulations to avoid a repeat of the market meltdown, the report said.
In the long run, immigration and demand for housing by "echo boomers" could improve the balance between supply and demand.
Echo boomers are entering their peak household formation years of 25–44 with more than five million more members than the baby boomers had in the 1970s, the report said, which should help keep demand strong for the next 10 years and beyond and bolster markets for rentals and starter homes.
A deep, prolonged recession is likely to suppress immigration, the report said, so household growth could total as much as 14.8 million between 2010 and 2020, or remain closer to the 12.5 million total seen from 1995 to 2005.
But even the report’s more conservative assumption for immigration would result in minorities fueling 73 percent of household growth from 2010 to 2020, with the minority share of households projected to increase from 29 percent in 2005 to 35 percent in 2020.
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