The housing market will not rebound in 2008. That is the conclusion of the State of the Nation’s Housing 2008, the annual report by the Joint Center for Housing Studies of Harvard University released this year on June 23. The recovery will occur only when the housing surplus declines, housing prices stabilize, and the economy begins to improve, the report concluded.
Home prices fell dramatically in 2007, with prices decreasing from the fourth quarter 2006 to fourth quarter 2007 by as much as 8.9% nationally. This decline caused a 6.5% loss in real home equity. The resulting drop in residential investment alone caused a 1% drop in overall gross domestic product (GDP) growth, and the decrease in construction caused the loss of 232,000 jobs.
The report also finds that even with the national housing construction rate falling 35% from 2005 to 2007, the number of vacant homes for sale rose 46%, a good indicator that the demand for housing continues to drop more quickly than production.
The rise in homeownership rates had clearly reversed by 2007, and the authors conclude that the proliferation of subprime loans did not cause a large rise in homeownership. The report shows that when the homeownership rate was increasing, the rate among younger and minority households expanded by the greatest margin. Now, these two groups of homeowners have become two of the most vulnerable in the current contraction.
As a result of current trends, the report predicts that the market for rental housing will become tighter; there was an increase of 2 million renter households from 2004 to 2007. The report states that while this rise is currently caused by stricter credit requirements and the uncertainty of falling home prices, in the long run homeowners who defaulted on their loans will drive a steady increase in renter households because of their damaged credit.
The implications of this shift for rental affordability remain unclear. The report cites a rise in renters severely burdened by housing costs. Between 2001 and 2006, the number of severely burdened households in the lowest income quartile rose by 1.2 million, and the number in the two middle quartiles increased by 1.4 million. In 2006, 17.7 million households at all income levels were spending more than 50% of their income on housing.
The report finds optimism for the cause of market stability, however, in the fact that some of the long-standing trends boosting housing demand remain in place. People living alone are projected to account for 36% of all household growth between 2010 and 2020. There has also been a substantial rise in the number of nontraditional households, spurred by the rising divorce and falling remarriage rates.
The National Low Income Housing Coalition was a partner in preparing this report and its release. The full report, The State of the Nation’s Housing 2008, is available at www.jchs.harvard.edu/publications/markets/son2008/index.htm