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The U.S. housing market is “showing signs of reviving,” with multifamily housing construction rising and stronger activity anticipated in single-family home construction, the Joint Center for Housing Studies of Harvard University (Cambridge, Mass.) says in a new report.
“While still in the early innings of a housing recovery, rental markets have turned the corner, home sales are strengthening, and a floor is beginning to form under home prices,” Eric S. Belsky, managing director of the Joint Center for Housing Studies, said in the center’s announcement on the release of the report.
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| Reviving demand, low inventories and favorable mortgage conditions should help drive recovery in the housing market, the report from Harvard’s Joint Center for Housing Studies says. |
The study, “The State of the Nation’s Housing,” says the housing market remained “depressed” for much of 2011, with sluggish sales and a record low for single-family home construction. But steadier job growth and improving consumer confidence late in the year sparked improved sales of new and existing homes (see Figure 1).
This year, with demand reviving and inventories of homes for sale depleted, home prices could finally “find a bottom,” with stronger sales setting the stage for a pickup in single-family construction as 2012 plays out, the report says.
Still, some dark clouds continue to hover over the housing picture, the report’s authors say.
- The roughly 2 million loans in foreclosure means distressed-property sales will remain high, exerting pressure on prices.
- Another 11.1 million homeowners owe more on their mortgages than their homes are worth, dampening sales of new homes and investment in existing homes.
- The number of vacant homes remains well above normal, limiting demand for new construction in many markets.
On the bright side, home construction and improvement spending have made a positive contribution to GDP in four out of five quarters since the start of 2011. This trend, combined with multifamily construction that is already on the rise, stronger sales of existing homes and related investment in improvements, will help drive economic growth and, in turn, the housing sector.
Statistics Offer Evidence of Market Uptick
Other key findings of the study include the following.
Rental market rebound. Here, demand has spiked, with the number of renters surging by 5.1 million since the start of the 2000s for the biggest decade-long increase in the postwar period. Driving this growth is the significant population of young, minority and low-income households that are more likely to rent, with the foreclosure situation and aging population also contributing.
Multifamily housing booms. Multifamily housing starts rose 54% in 2011, at the same time single-family home construction fell approximately 8.6%.
Single-family construction looking up. Single-family housing starts were 16.6% higher in the first quarter of this year than the admittedly low levels of a year earlier. Permits for new construction also were up in the first quarter, by 16.9%. Reports of rising orders and new-home sales suggest that single-family construction activity “appears to be emerging from the deepest, most prolonged downturn in recent history.”
Remodeling on the rise. Spending on home remodeling was down 1.6% in the first quarter from a year earlier, but the Joint Center for Housing Studies’ Leading Indicator of Remodeling Activity is forecasting a return to spending growth in the second half of the year.
Home sales trending up. After 2011’s record low of 306,000, new-home sales rose 16.7% in the first quarter from the prior year. Existing-home sales also were up, by 5.2% in the quarter from the year before.
Favorable Mortgage Market
Also a Plus for Building Prospects
“Surveys consistently find that the overwhelming majority of young adults plan to own a home in the future, but many would-be buyers have stayed on the sidelines waiting for the job outlook to improve and house prices to stop falling,” Belsky said. “But as markets tighten, these fence-sitters may begin to take advantage of today’s lower home prices and unusually low mortgage rates.
“With rents up, home prices sharply down, and mortgage interest rates at record lows, monthly mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s.”
But Chris Herbert, director of research at the Joint Center for Housing Studies, said the housing sector needs “a sustained increase in jobs to bring household growth back to its long-term pace and spur demand.”
“The country has seen new household formations fall well below expected long-run rates due to a falloff in young adults being able to move out on their own and a slowdown in net immigration,” Herbert said. “Even in 2011, fewer than 700,000 households were added and that’s well below the 1.2 million or more annual trend expected under more normal economic conditions.”
At the same time, the inability of many homeowners to refinance, together with rising rents and high unemployment, has driven up the number of households spending more than half their income on housing to record levels. Between 2007 and 2010, the number of U.S. households paying more than half of their income for housing rose by an “astounding” 2.3 million, bringing the total to a record 20.2 million.
“While improving housing markets will benefit the economy and many existing homeowners, it will also increase the cost pressure on others,” Herbert notes. “Even as the recovery takes hold in many markets across the country, we cannot lose sight of the long-run challenge of providing affordable housing for the most vulnerable, nor forget the damage done to foreclosure-ridden neighborhoods, which will take years to heal.”
The full report is available for free download at The State of the Nation’s Housing 2012.
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