Are We There Yet? The Long Road to Recovery for the Nation’s Housing Market

July 24, 2014

By Brittany Walls, GHI Intern, Habitat for Humanity International

Nearly six years after the crash of the United States’ housing market, there remains near-constant debate regarding the state of the nation’s housing environment. In June, the Joint Center for Housing Studies of Harvard University released its housing report, titled “The State of the Nation’s Housing 2014.” The report offers insight into current housing trends and challenges, such as declining homeownership rates, a large millennial generation that remains largely inactive in the housing market, rising demand for rental units, and a major affordability crisis.

Overall, home starts and sales are still nowhere near average pre-crash levels. The future course of the housing environment will depend largely on several factors, including: cost and availability of mortgage financing; affordability of housing; and job and income growth. The future of the housing market seemed bright at the start of 2013, as the U.S. witnessed increasing home sales, prices, and construction.  But the market was still burdened by challenges that persist today:  increasing interest rates; low inventories of for-sale homes; pullback in investor purchases of distressed properties; and the lack of significant strides in job growth. These factors have led to a slowdown in the single-family housing market. By the first quarter of 2014, new home sales and housing starts were down by 3 percent from the previous year while existing home sales were off by 7 percent from 2013.

This subdued homeownership growth can largely be attributed to lower headship rates, or fewer heads of households, among the large millennial generation. The generational decrease is driven by both a decline in immigration and an increase in the share of the age group still living in their parents’ homes. Despite economic setbacks like lower incomes and high student loan debts, the number of heads of households in their 30s should increase by 2.7 million over the next decade, providing a strong lift to starter home and rental markets.

Although 2013 was the ninth consecutive year to see the rate of homeownership in the United States decline, the rate of decline was the smallest posted since 2008. Increasing home prices and interest rates continue to make homeownership more of a financial stretch for many. Falling incomes, increasing student loan debt burdens, and the huge challenge in qualifying for mortgage loans, add further financial pressure. Not surprisingly, as homeownership rates decrease, the number of renter households rise. As rental vacancy rates fall and values of rent payments surge, the private sector has responded with a sustained ramp-up in multifamily unit construction.

There remains a serious affordability crisis for both homeowners and renters. The share of cost-burdened households – both renters and owners – rose steadily from 29.6 percent in 2001 to a record 37.2 percent in 2010, before sliding to 35.3 percent in 2012. The inability to find affordable units forces many households to sacrifice on housing location and/or quality and limits their spending on other necessities like food and healthcare. These cutbacks pose a serious threat to the basic well-being of low-income households.

Looking ahead, as noted in the report, household growth is expected to pick up and bolster demand for both owner-occupied and rental housing, as long as income and employment trends continue on an upward path. However, the future of homeownership is contingent largely on availability and cost of mortgage financing, while rental assistance appears to be the primary option to improve rental housing affordability. With a huge millennial population, increasing minority households, and an aging baby boom generation, there exists great potential for the U.S. housing market to return to pre-recession rates. According to the report, the private and public sectors must continue to play an active role in providing the necessary policies and support to get us there.  

You’ll find “The State of the Nation’s Housing 2014” here.  

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