Harvard Joint Center for Housing Studies Report Details Housing Recovery, Affordability Challenges

According to Harvard’s Joint Center for Housing Studies’ annual The State of the Nation’s Housing report released on June 26, the nation’s housing recovery is continuing to push forward, but complications still exist for both renters and homeowners.  Although home construction and sales increased in 2013, rising prices and interest rates may keep more families from becoming homeowners.  Furthermore, increasing demand for rental homes and lacking rental assistance may continue to keep renting unaffordable for low- and moderate-income families.

According to the report, sales of single-family homes were on the rise for much of 2013 before slowing during the first quarter of 2014.  Compared to the first quarter of 2013, new home sales declined by 3 percent and existing home sales declined by 7 percent in the first quarter of 2014.  The report lays much of the blame for slowing home sales on rising mortgage interest rates.  Since the third quarter of 2013, interest rates have been rising from a low of 3.4 percent.  The increase in interest rates corresponds closely with the recent slowdown in the single-family housing market.

Overall, the nation’s homeownership rate declined for the ninth year in a row in 2013, and at 65.1 percent is at its lowest point since 1995.  While the number of distressed homeowners facing foreclosure is on the decline, rising home prices and interest rates are preventing even more potential homebuyers from joining the ranks of homeowners.  Due to increasing prices and interest rates, the average monthly payment for the median-priced home rose 23 percent in 2013.

The report also cites tightening credit requirements as a contributing factor to the decline in the homeownership rate.  The average FICO score for qualified borrowers for Fannie Mae-backed mortgages and for Federal Housing Administration (FHA) loans has risen during the recession.  The report concludes that an easing of credit availability would positively impact the national homeownership rate.

One major hindrance to household formation cited by the report is the prevalence of student loan debt held by potential homebuyers aged 25-34.  In the ten year period from 2001 to 2010, the share of households in this age range with student loan debt increased from 26 percent to 39 percent, with a 50 percent increase in the total debt amount.  The share of households with at least $50,000 in debt rose from 5 percent to 16 percent.  For many young potential borrowers, paying off student loan debt remains a higher priority than homeownership.

The report also ascribes the continuing slow recovery for single-family housing to tepid job growth nationwide.  Although the unemployment rate has fallen to 6.3 percent and there now exists as many jobs as there were at the start of the recession, the gains made still do not accommodate the millions of adults who have entered the workforce over the past six years.  The report concludes that a more robust employment recovery would help create a more robust housing recovery.

Regarding rental housing, more than one million new renters entered the market in 2013, according to the report.  With this increased demand has come increased rental costs, as rents for professionally managed multifamily residences increased by 3 percent in 2013.

The share of cost-burdened households increased during the recession and has remained elevated.  The report defines housing as “affordable” if housing costs are no more than 30 percent of a household’s income.  By this standard, 35.3 percent of households do not live in housing that is considered affordable, including more than 50 percent of renters and almost 30 percent of homeowners.  Twenty-eight percent of all renter households are severely cost burdened, paying more than 50 percent of their incomes for housing.  Among households earning less than $15,000 per year, 82 percent are cost burdened and 69 percent are severely cost burdened.

The report states that, when available, rental subsidies can make a deep impact on affordability for low-income families.  However, the demand for rental assistance continues to outpace the supply.  The number of income-eligible renters rose by 3.3 million households between 2007 and 2011, but the number of assisted housing units remained the same.  For the 11.5 million extremely low-income (ELI) renters, earning less than 30 percent of area median income, only 3.2 million units are available and affordable.