Harvard University’s Joint Center for Housing Studies reports: A decade after the onset of the Great Recession, the national housing market is finally returning to normal. With incomes rising and household growth strengthening, the housing sector is poised to become an important engine of economic growth. But not all households and not all markets are thriving, and affordability pressures remain near record levels. Addressing the scale and complexity of need requires a renewed national commitment to expand the range of housing options available for an increasingly diverse society.
Housing markets continued to strengthen in 2016, with new and existing home sales, prices, and construction levels all on the rise. Still, single-family construction, traditionally the largest source of residential investment, remains well below historical levels. As a result, low inventories of homes for sale are driving nominal prices above pre-recession peaks in many metros. In rental markets, low vacancy rates are pushing up rents and keeping multifamily construction relatively strong. Easing these tight conditions is especially difficult where labor shortages and limited land availability constrain new housing supply.
Household growth, the primary driver of housing demand, has picked up and is likely to remain strong as members of the millennial generation increasingly move into their 20s and early 30s over the coming decade. But immigration, typically a large source of household growth, could be in for a slowdown. Worsening income inequality, along with the increasing concentration of poverty and affluence, are also concerns. Still, the growing diversity and overall aging of the US population ensure that demand for a variety of housing types and locations is set to increase.
Although still on the decline, the national homeownership rate showed signs of stabilizing in 2016. The foreclosure inventory is approaching its pre-crisis volume and home purchase activity is slowly increasing. While high costs pose a challenge in certain markets, homeownership remains affordable in many metro areas of the country. Meanwhile, with conventional mortgage credit still tight, FHA continues to play a central role in serving first-time homebuyers. While the strengthening economy and the aging of the millennial generation may lift demand for homeownership, much uncertainty surrounds future economic, credit, and housing market conditions.
After more than a decade of soaring demand and five years of real rent increases, rental markets across the nation remain extremely tight in 2016. Rapid growth in both renters and rents continued in most markets, although the pace moderated somewhat in certain high-cost markets. Meanwhile, multifamily construction took up the lead from single-family conversions in adding supply, but most of these new apartments are concentrated at the high end. As a result, the diminishing supply of lowcost rental housing remains in high demand, fueling ongoing concerns about the market’s ability to meet the housing needs of lower-income households.
Nearly 39 million US households live in housing they cannot afford. The shrinking supply of low-cost rentals, along with potential losses of subsidized units and declines in the value of tax credits, could widen the already substantial gap between the demand for and supply of affordable housing. Meanwhile, the retrenchment in federal funding has put increased pressure on state and local governments to address the housing needs of the most vulnerable individuals. The aging of the US population adds to the nation’s challenges by driving up demand for housing that is both accessible and affordable.
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