As the economy continues to recover from the COVID-19 pandemic, Americans are struggling with soaring home prices, affordability issues for both renters and homeowners, and the potential risk of evictions and foreclosures, according to “The State of the Nation’s Housing 2021” from Harvard’s Joint Center for Housing Studies (JCHS).
While the government has taken steps to bolster Americans and the economy, additional support will be necessary to ensure that all households benefit from the expanding economy, according to JCHS.
“For those households with secure employment and good-quality housing, their homes provided a safe haven from the pandemic,” says managing director Chris Herbert. “But for millions struggling to cover the rent or mortgage, their housing situations have become increasingly insecure, and these disparities are likely to persist even as the economy recovers, with many lower-income households slow to regain their financial footing.”
Single-Family Supply and Demand
The pandemic has helped accelerate household growth in the suburbs and small metros, especially among younger households ready to make the move to homeownership and for those looking for more space to work remotely. Existing home sales increased 6% and new single-family home sales jumped 20% last year, putting home sales at the highest level since 2006. However, the market is constrained by the tight supply, with supply for existing homes dipping below two months in late 2020—the first time ever—and the median time on the market reaching 18 days, a record low.
Home prices also skyrocketed due to the increased demand and the supply constraints. The largest gains, according to the report, were in rapidly growing Western states, led by a 28% increase in Boise, Idaho, and 22% to 23% increases in Austin, Texas, and Tacoma, Washington.
“These outsized increases have raised concerns that a home price bubble is emerging,” says Daniel McCue, a JCHS senior research associate. “But conditions today are quite different from the early 2000s, particularly in terms of credit availability. The current climb in prices instead reflects strong demand amid tight supply, aided by record-low interest rates.”
While the national homeownership rate continues to rise, disparities between households of color and white households remain. In the first quarter of 2021, the Black-white homeownership gap was at 28.1 percentage points, an improvement from the record high of 30.8 percentage points in 2019. The report cites income inequality as a major contributor to the issue.
“What I worry about is we've got prices at a level now that's really going to price a lot of people out of the market, and particularly people of color who don't have a family history of homeownership and don't have that wealth to draw on,” Herbert says.
Housing Cost Burdens
Even as the economy recovers, data show significant amounts of financial stress remaining among households.
“Financial distress during the pandemic disproportionately affected low-income households, most of whom entered the pandemic already burdened by high housing costs,” says McCue.
Housing affordability has been a challenge for the lowest-income renters pre-pandemic. According to the report, more than 80% of renters earning less than $25,000 were cost burdened—spending more than 30% of their income on housing costs—in 2019, and the majority spent over half their income on housing.
However, housing cost burdens also have moved up the income ladder, according to Alexander Hermann, a JCHS senior research analyst. “Seventy percent of renter households earning between $25,000 and $34,999 and nearly 50% of renters earning between $35,000 and $49,999 were cost burdened in 2019.”
In addition, the financial impacts of the pandemic have affected households unequally. At the start of this year, one-quarter of households earning less than $25,000 were behind on housing payments compared with 6% of household earning $75,000 or more.
Risk of Eviction or Foreclosure
The report also highlights the millions of Americans at risk of eviction or foreclosure due to pandemic-related income losses. In early 2021, 14% of all renter households were behind on housing payments, and more than one-fifth of renters were in arrears in 10 states. The racial disparities are seen here as well, with 29% of Black, 21% of Hispanic, and 18% of Asian renters in arrears compared with 11% of white renters.
With the federal eviction moratorium slated to come to an end June 30, there are concerns about an impending wave of evictions.
“Getting these roughly 7 million households who are behind on rent caught up on housing payments before the eviction moratoriums expire will be a growing concern in the coming months,” adds McCue. “But it's not just renters, measurable levels of distress in housing remain among homeowners as well.”
As of March, a majority of the 7.1 million loans that had entered forbearance, which allows borrowers to defer or reduce payments for up to 18 months, had left that status. However, there is uncertainty for the 2.3 million borrowers who have yet to resume their mortgage payments.