Harvard University’s Joint Center for Housing Studies released its annual State of the Nation’s Housing report for 2012 and it very closely tracks comments made by NAR Chief Economist Lawrence Yun earlier this week at a CRE conference on what’s holding back the housing recovery.
The Harvard report, which always does a good job laying out in plain language what’s happening with the market, points to the increasingly strong market fundamentals and says home sales really could see serious improvement this year.
The main weakness is tepid job growth, which Yun talked about as well earlier this week. The overhang of distressed properties is also a continuing problem.
Other issues include the unusually slow pace at which young people today–the Echo Boomers—are leaving their parents’ homes and forming their own households. That’s a big missing link in home sales growth, and it’s certainly related to the weak job picture. Unless young people feel confident about getting a good job, they’re going to remain hesitant to start a new household.
The big beneficiary of the last several years has been the multifamily housing sector. It’s booming. As the report puts it, “the number of renters surged by 5.1 million in the 2000s, the largest decade-long increase in the postwar era.” More rental growth is expected.
It’s in part because of this rental growth that home ownership is poised to improve. The report includes an informative graph (see below) that shows how much more affordable mortgage payments have become relative to rental rates. At some point, renters are going to realize they’re losing money each month they continue to rent.
Another interesting point made by the report is the critical role older home owners have played in preventing the U.S. home ownership rate from falling more than it has over these last few years. The rate today stands at about 66 percent, which is about 2 percent lower than it was a few years ago. Households 65 and older are the only age cohort that has continued to increase its share of ownership; all of the others, including the important middle-aged move-up cohort, have declined.
The bottom line: It’s been a rough few years but the analysts at the Joint Center think the recovery will begin in earnest this year.
[Fun Fact: Have you ever wondered why the Harvard Joint Center for Housing Studies has the word "Joint" in it? It's because the center used to be a joint project of Harvard and MIT, but in 1989 the center was taken over entirely by Harvard, but the original name was retained.]