9 takeaways from Harvard's 2012 State of the Nation’s Housing report

The Joint Center for Housing Studies of Harvard University released its annual State of the Nation’s Housing report this morning. HousingZone editors sifted through the 44-page report to identify the key findings.

Here are our nine takeaways:

• Steadier job growth and improving consumer confidence were key to boosting sales of both new and existing homes in 2011. These factors, coupled with a depletion in inventories of homes for sale, lead economists to believe that home prices may finally bottom out this year.

• However, three conditions will slow the recovery of the for-sale housing market: a backlog of roughly two million loans in foreclosure; the 11.1 million homeowners who are underwater on their mortgage; and the above-normal number of vacant homes on the market. The remedy, according to the Harvard report: a sustained increase in employment to bring household growth back to its long-term pace.

• The rental market continues to be the bright spot. The number of renters surged by 5.1 million in the 2000s, the largest decade-long increase in the postwar era. The growth was driven by both the economic downturn/housing crash and demographic trends (e.g., aging population). Moreover, multi-family starts more than doubled from the trough to a 225,000 unit annual rate in early 2012, but they are still well below the nearly 340,000 annual average in the decade before the bust.

• However, the rental market (as well as for-sale market) has yet to benefit fully from the presence of the large echo boom generation, largely due to the recession, which slowed household formations among this group.

• Demand for rentals has pushed rental vacancy rates down and rents up. The Harvard report cited data from MPF Research that shows that rents on investment-grade multi-family properties outpaced inflation in 38 of the 64 markets it tracks. Of the remaining metros, all but one (Las Vegas) posted at least nominal rent increases in 2011.

• Although young households have increasingly opted to rent in recent years, most still aspire to homeownership. For instance, the late-2011 Fannie Mae National Housing Survey found that 86 percent of renters aged 18–34 believe they will ultimately own homes. Record housing affordability levels and rising rental rates will only help drive echo boomers and younger Gen Xers into homeownership.

• Household growth remains at near-record lows. Average annual household growth in 2007–11 was just 568,000, less than half the pace in the first half of the 2000s or even the 1.15 million averaged in the late 1990s. Two factors are responsible for this slowdown: a decline in the rate at which individuals (particularly those under age 35) form independent households and a sharp drop in immigration.

• However, over the longer run, the growth and aging of the current population alone — including the entrance of the echo boomers into adulthood— should support the addition of about 1 million new households per year over the next decade. Over the next 20 years, the echo boomers have the potential to spur new-home demand to an even greater extent than their parents did beginning in the 1970s. Immigration, however, is a bigger unknown.

• A larger share of tomorrow’s young households will be minorities because echo boomers are much more racially and ethnically diverse than previous generations. The Joint Center projects that minorities will account for more than 70 percent of net household growth in 2010–20.

Download the 44-page report at: http://www.jchs.harvard.edu/research/publications/state-nation%E2%80%99s-housing-2012