"Things are positive for the long run, though clearly there's going to be a period of turmoil," remarked Eric Belsky, managing director of the Joint Center for Housing Studies, in an interview coinciding with the release of the Center's 2010 report titled "The State of the Nation's Housing."
Among factors causing concern are elevated vacancy rates, record foreclosures, and continued high unemployment.
Over the coming decade and once employment stages a convincing comeback, demographic forces should lift currently depressed levels of household growth and spur increased construction and sales, according to JCHS representatives. The annual report analyzes current home ownership trends and examines how federal government policies are affecting the marketplace.
Bolstered by immigrants, the echo-boom generation is already larger than the baby boom generation, and the baby-bust generation (born 1966-1985) is nearly as large. If immigration matches the pace projected by the Census Bureau and headship rates (ratio of households to the population) by age and race hold steady, household growth should come close to 15 million from 2010 to 2020, the researchers reported. Even if it falls to half the projected pace, household growth should equal the 12.5 million growth from 1995-2005.
Both housing policy challenges and opportunities will abound in the years ahead, the report concludes.
A brightening personal-income picture, a willingness by more local banks to make home loans, reports that investors are returning to the housing market and that housing is the most affordable it has been in decades are encouraging signs of a real estate rebound. Nevertheless, the Harvard researchers say big changes are afoot in residential real estate, pointing to shifting demographics.
Among six demographic drivers with implications for housing are:
1.
Slowdown in household growth
A sharp drop in immigration, attributed to broad job losses, and a doubling up among economically stressed families have played major parts in decelerating household growth. During the first half of the decade, household growth was 1.2-1.4 million annually, but fell to less than 1.0 million per year in the subsequent years (2005-2009).
2.
Reduced mobility
Overall mobility rates fell by about 12.6 percent in the period 2005-2008 before stabilizing in 2009. Homeowners experienced the steepest declines, "likely because the housing crash left so many underwater (or nearly so) on the mortgages, making it difficult to move," the researchers suggested. Mobility rates among older owners posted the sharpest drop as many seniors deferred retiring and moving to a different home because the financial crisis depressed their home equity and reduced their retirement accounts.
3.
A lost decade for household income
For the first time since at least 1970, median household incomes for all age groups in each income quartile are likely to end the decade lower than they began. Households under age 25 in the lowest income quartile were hardest hit, but no group was spared from the declines.
"These dismal figures predate the heavy employment losses in 2009," the report cautions, noting housing demand must therefore build upon a lower real income base than a decade ago. If incomes do not bounce back quickly, "Americans will have to choose whether to cut back on the size and features of their homes or allocate larger shares of their incomes to housing."
4.
Household wealth reversals
Household wealth went through a sharp boom-and-bust cycle over the last decade, while household mortgage debt exploded. On a per household basis, in the span of a decade, real household wealth actually fell from $526,000 in 1999 to $486,600 in 2009. Mortgage debt soared, rising from less than $6 trillion to more than $10 trillion in inflation-adjusted dollars. A resulting drop in home equity was described as "startling" in the JCHS report, which noted, "Aggregate real home equity has not been this low since 1985 when there were far fewer homeowners than today."
5.
Growing diversity of demand
"Regardless of what happens in the future, immigration since 1980 has already reshaped the nation's demographic profile, particularly in terms of racial and ethnic diversity," wrote the authors of The State of the Nation's Housing 2010.
Throughout the current housing cycle, the numbers of immigrant and minority households outgrew those of native-born white households, accounting for 74 percent of net household growth between 2003 and 2009. Those rising numbers mean an increased presence of these sectors in home buying, remodeling, and rental markets. "Future expansion of housing investment and the growth in the broader economy will depend on reducing the significant income and wealth disparities between whites and minorities," the authors advised.
6.
Residential development and the environment
Acknowledging a "growing chorus" is calling for more compact forms of residential development to reduce vehicle miles traveled (VMT), and consequently, carbon emissions and energy consumption, the researchers reviewed various studies and arguments by proponents. They observed:
1. In most communities, achieving compact development would require changes to local zoning laws, which today often discourage higher densities along with mixed commercial and residential land uses.
2. Compact development would, at best, reduce VMT and related carbon emissions relative to a 2000 baseline between 11 percent (as estimated by the National Research Council) and 18 percent (the Urban Land Institutes estimate) by 2050.
3. More compact development patterns would help make public transportation more economical.
4. While having public transit in the area increases the share of commuters that use it, access does not necessarily mean high ridership. In fact, less than 25 percent of households with at least one commuter report using public transport regularly.
The Outlook
The aging echo-boom generation, augmented by immigration, will increasingly drive household growth over the next 15 years. The number of echo boomers is expected to swell to 92.9 million by 2025. Immigration is expected to grow to 86.5 million. "This highly diverse generation will give demand for apartments and smaller start homes a lift over the next 15 years," the report stated.
Second-generation Americans (children born in the US to immigrant parents) among the echo boomers will be important in shaping the characteristics of future households since those aged 25-64 typically have higher household incomes than both foreign-born and other native-born households of all races and ethnicities.
Baby boomers will boost demand for senior housing. JCHS researchers say the units built over the next 10-20 years that intentionally cater to older Americans will be the housing available for generations to come. They expect senior housing issues will gain more urgency during the coming decade as a result of limited federal support for senior housing and the current funding system that encourages expensive trips to skilled nursing facilities rather than lower-cost, less institutional assisted living options and programs.
The State of the Nation's Housing, released annually by the Joint Center for Housing Studies, provides a periodic assessment of the nation's housing outlook and summarizes important trends in the economics and demographics of housing. The report continues to earn national recognition as a source of information regularly utilized by housing researchers, industry analysts, policy makers, and the business community.
The complete 44-page report on The State of the Nation's Housing 2010 may be viewed and downloaded at http://www.jchs.harvard.edu/publications/markets/son2010/
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