Higher mortgage rates and a harsh winter slowed down single-family housing starts and sales in the past year. The lack of for-sale homes, both new and existing, is driving prices up, which has resulted in many homeowners gaining needed equity and reduced delinquency rates. However, the number of distressed houses is still high. According to experts from Harvard’s Joint Center for Housing Studies (JCHS), who discussed these topics and more in a live webcast presenting the annual State of the Nation’s Housing report, millennials, minority households, baby boomers, and relaxed credit conditions will be the driving forces behind a healthy and sustained housing recovery.

JCHS research director, Chris Herbert, stated during the webcast that the U.S. is experiencing the lowest point of home ownership for 24- to 35-year-olds since we began tracking such information. “The number of 20-something’s living with their parents jumped to more than 2 million, an increase of 20 percent since 2000,” Herbert says. Several surveys and studies show that this age group wants to invest in housing, but high student debt and lower incomes are major hurdles. Having young homeowners is key, according to Herbert, because move-up buyers can’t do their part unless they can sell their entry-level homes.

Minority households are expected to lead the way in first-time home buyers. However, tighter restrictions in credit lending are preventing what should be an increase in single-family sales. “What we need to happen is for this gap between white and minority homeowners to be shrinking,” Herbert explains, “and exactly the opposite is happening.” A few relevant statistics show that this gap isn’t closing primarily because minority households have a harder time getting mortgages:

  • From 1993 to 2013, the white share of first-time homeowners fell from 86 percent to just 77 percent, while the Hispanic share climbed from 4 percent to 9 percent, and the Asian/other share increased from 2 percent to 6 percent.
  • Despite their growing presence in the homeownership market, minorities still struggle to obtain loans. In 2011-12, lending to Hispanics was up just 7 percent and up a modest 5 percent among blacks, in contrast to an increase of 15 percent or more in the volume of loans extended to both white and Asian/other borrowers.
  • In 2011-12, denial rates for conventional purchase mortgages among Hispanics (25 percent) and blacks (40 percent) are nearly two to three times the rate among whites.

Although obtaining a mortgage is much more difficult than it used to be, the increase in credit restrictions and mortgage protection means that the most stable type of mortgage, a 30-year-fixed rate, is coming back as the most popular. This type of mortgage, says Herbert, was a good investment even during the housing crisis and should be the basis for a strong return to homeownership as part of a long-term retirement plan for aging Americans.

Baby boomers represent the biggest share of the population; within the next decade more than 8 million Americans will be over the age of 70, according to the report. Herbert states that most boomer homeowners wish to age in place, which means modifications must be made to their homes. There also is an increase in this group moving into nursing homes, looking for smaller homes near their families, or moving in with their children. “Home builders are starting to think about multigenerational housing or adding granny flats,” Herbert says. There also are naturally occurring retirement communities appearing in urban areas with easy access to basic services, resulting in older households buying entry-level houses and the subsequent need for more affordable housing in these areas. Boomers are such an important part of the housing market that the JCHS along with AARPCares are releasing a special report on boomers and housing on Sept. 2.

The complete 2014 State of the Nation’s Housing report is available online now, along with an executive summary, and a video of the webcast soon will be posted on YouTube.