Last week, The Joint Center for Housing Studies at Harvard University released “The State of the Nation’s Housing 2011,” its annual outlook on housing and homeownership through the rearview mirror of the past few years. The essence of the report, which the Joint Center embargoed for publication until this morning, is that the strength of housing’s recovery “will rest on how fully employment bounces back.” That same week, the federal government released data that only 54,000 new jobs were created in May, after the previous three months had averaged 220,000 jobs. The unemployment rate rose to 9.1%, and pundits feared that the country was taking another step backwards economically.
These two releases are not good news for home builders, who have already endured a decade in the 2000s when total housing construction barely exceeded the lowest level of any 10-year period dating back to 1974, according to Eric Belsky, the Joint Center’s managing director. The report cites the Current Population Survey, which indicates that household growth averaged only 500,000 per year in 2007 through 2010, less than half the 1.2 million annual rate average in 2000.
The latest Joint Center report concedes that the housing recovery it has predicted in past years has not materialized. The Joint Center also notes that many of the states that are farthest from their peak employment levels—Nevada, Florida, Georgia, Arizona, and California—are also those “that claimed the largest share of home building activity during the boom.”
While the Joint Center’s report won’t come as a surprise to anyone who has been following the housing market closely, it is still useful for providing a mostly fact-based historical perspective that could help guide the nation as it sorts out how to move forward in its support of housing: •The national homeownership rate fell below 67% in 2010, down from 69% in 2004. The excess inventory of unsold homes in 2010 equaled about 700,000 for-sale homes and 160,000 rentals.
•While most baby boomers are expected to age in place, one in three heads of households aged 65 to 74 relocated in the previous decade, many to smaller homes. If that mobility rate continues, some 3.8 million aging boomers would be moving in this decade. At any rate, baby boomers are projected to increase the number of households over age 65 by 8.7 million, or 35%, in this decade.
•Even though homeownership rates among young adults were slipping before the recession hit, and that slippage accelerated during the recession, the Joint Center still believes that enough echo boomers will want to buy a home to boost the number of young adult households over the next decade. “Indeed, assuming headship rates revert to their 2007-9 average, and that immigration is just half of what the Census Bureau now projects, the number of households under age 35 will grow to nearly 26.5 million in the next decade.”
•The “one bright spot” in the housing sector recently is the rental market. Between 2007 and 2009, 1.4 million single-family homes became rental properties. And between 2004 and 2010, the number of renter households expanded by 3.9 million to a total of 37 million. Last year, rental vacancy rates fell to 9.4% in the fourth quarter, the lowest rate since 2003, which reverses a trend in previous years where supply was significantly outpacing demand. However, low-income rental continues to dissipate.
•Minorities will account for seven out of 10 of the projected 11.8 million new households in 2010-20 (which the Joint Center says is a conservative estimate). Hispanics alone will contribute nearly 40% of that increase, and by 2020 minorities should make up one-third of all U.S. households.
As has been the case in recent years, the Joint Center devotes a good portion of its annual report to affordability. The number of households able to afford monthly payments at 28% of their incomes rose to 70.8 million in 2010, from 48.2 million in 2007. But affordability is directly related to the collapse in home prices, which left nearly 15% of homeowners with underwater properties. “The amount of real home equity fell from $14.9 trillion in the first quarter of 2006 to $6.3 trillion at the end of 2010—well below the $10.1 trillion in outstanding mortgage debt,” the Joint Center recounts.
Interestingly, just 5% of all census tracts accounted for more than one third of all homes lost to foreclosure since 2008. “It will take years for these neighborhoods—which are disproportionately minority—to recover from this calamity.”
John Caulfield is senior editor for Builder magazine.