The housing market remains mired in a post-recession slump, with sales of existing homes "depressed" and new homes "near record lows," according to The State of the Nation's Housing 2011 released Monday by the Joint Center for Housing Studies of Harvard University.
"The state of the nation's housing is sobering," said Eric S. Belsky, managing director of the center. "Total housing construction over the previous decade now barely exceeds the lowest level of any ten-year period in records dating back to 1974, but vacancies remain elevated because the recession has driven demand down so sharply."
The issue, according to the center, is soft demand.
"While the sharp declines in both home prices and interest rates have left homes in many places more affordable than they have been in decades, stubbornly high unemployment and tightened lending standards have limited the ability of many first-time buyers to capitalize on the situation,"Belsky said.
The center does expect demand to pick up, fueled by household growth at both ends of the demographic age spectrum. In particular, the center found that the generation now coming of home-buying age is apparently putting off the decision to buy.
"Even though the echo boomers (born 1986 and later)--the largest generation ever to reach their 20s--are entering their peak household formation years, household growth flagged during the late 2000s as more young adults delayed setting out on their own and growth in foreign-born households came to a halt." It continued, "It is unclear how much, if at all, headship rates among echo-boomer adults will recover as they age and the economy improves.It is also unclear if net immigration will make up for the declines that occurred after the economic crisis. Even so, there is reason to believe that the echo-boomer generation will be large enough to boost the number of young adult households in 201020 and in turn the demand for starter apartments and single-family homes."
On the other end of the age spectrum, the aging of the baby boom is expected to push 65-plus households by 8.7 million by 2020, 3.8 million of which the center expects to seek to downsize into smaller homes. Said the report, "Their sheer numbers also mean that the baby boomers will have a major impact on the housing markets of preferred retirement destinations, which so far have been the non-metropolitan areas in the South and West. Meanwhile, the number of pre- boomer households over age 75 will also grow rapidly over the next 10 years and spur demand for housing developments that offer both independent and assisted living."
The report noted a turnaround in the rental market as more households a priced out of home ownership. "Rental housing markets are tightening and may begin to lead a modest recovery in housing construction this year," said Chris Herbert, research director for the center. That, however, is putting upward pressure on rents.
The center also noted the impact of foreclosures on the housing market, but it pointed out that nearly half of all foreclosures in 2010 took place in 10% of neighborhoods.
The report did not predict when a turnaround would occur, but Herbert said, "The ingredients for a sustained recovery may be coming together, but it is still not clear when homebuyers will have the urgency to return to the market in sufficient numbers to lift the market in a meaningful way."
That, said the center, would occur "once consumers perceive that a floor has formed under house prices," adding, "their reentry into the market could quickly burn through the lean inventory of unsold new homes and slim down the excess supply of existing homes on the market."