Harvard University’s Joint Center for Housing Studies released its annual report on the state of the nation’s housing 2017. The report paints a picture of the national housing market, as it examines its drivers, challenges, and other trends in homeownership and rental housing.
The U.S. housing market, according to the Harvard researchers, has returned to normal 10 years after the Great Recession and is poised to grow as millennials age.
Affordability is key
“Housing demand, home prices, and construction volumes are all on the rise, and the number of distressed homeowners has fallen sharply, ” the researchers say. “However, along with strengthening demand, extremely tight supplies of both for-sale and for-rent homes are pushing up housing costs and adding to ongoing concerns about affordability.”
In 2016, the national home prices surpassed its pre-recession peak. This housing milestone is evidenced by rising nominal prices in all but three largest metropolitan areas in the U.S. (there’s a hundred of them), according to the researchers.
Gains or declines in actual home prices vary among the metros and these differences add to what the researchers characterized as an already substantial gap in home prices between the most and least expensive markets in the U.S.
Of income and housing costs
They did note that low mortgage rates keep rising home prices in check and make homeownership conditions generally favorable for households. In spite of that, more households are paying higher housing costs than their counterparts during the start of the previous decade.
The percentage of income that goes toward the monthly mortgage payment on a median-priced home is an indicator of affordability. Per the researchers’ last count in 2015, almost 19 million households paid more than half of their income for housing.
However, income did pick up in 2016 and reduced the number of households that paid more than 30% of their income for housing for five straight years.
Per the researchers, 59% of households living in metros across the U.S. can afford to make the monthly payment on a median-priced home where they live in 2015. But this extent of affordability varies by tenure.
They cite as example St. Louis whose 72% of all households had sufficient income to afford the median-priced home monthly payment while only 64% of Philadelphia households can afford such payment.
Homeownership rate levels off
The researchers relate that the homeownership rate seems to be leveling off. Last year, the growth in the number of homeowners was the highest increase posted since 2006, and that homebuying activity is projected to continue to gain traction this year.
Between 2006 and 2015, homeownership rates fell across all of the U.S.’s largest metros and among these metros, homeownership trends vary.
Despite 2016 recording the slightest decline year-over-year in homeownership rate, it continues to decline. The Harvard researchers attribute this to foreclosures (the foreclosure crisis), the Great Recession, and a reduced activity in home purchases.
The future of homeownership, the researchers opine, would depend on broadening access to mortgage financing, which remains tight for those with lower credit scores.
Changing homeowner demographics
“… as the members of the millennial generation move into their late 20s and early 30s, the demand for both rental housing and entry-level homeownership is set to soar,” the researchers say.
Indeed, the profile of recent homebuyers who moved into their homes within the past 12 months varies from long-term homeowners. The researchers found these recent homeowners as “younger, have children and be of Asian or Hispanic descent.”
With respect to age, the number of recent homebuyers who are 55 years old and above increased their share to 27% in 2015. The share of recent buyers between 65 and 75 years old almost doubled to 9% between 2001 and 2015.
Meanwhile, the annual number of recent buyers under the age of 35 recovered somewhat from Recession but it still below pre-housing boom levels. The number of recent buyers within that group declined by 5% from 2001.
With respect to racial/ethnic mix, the share of Asian homebuyers increased 27% in 2015 from its 2001 level. The number of Black homebuyers however remained 33% below its 2001 level. And the share of White homebuyers in 2015 was 17% lower than in 2001.