Housing revival is real?sustained recovery depends on affordability and the economy
The Harvard Joint Center for Housing Studies put a confirmation stamp on the notion that the current housing market recovery is real with its ?State of the Nation?s Housing 2013? report.
How long that recovery can be sustained, however, is open to debate as the Center also noted the share of U.S. households owning homes is at its lowest point since the Census Bureau began keeping such records in 1976. Even though low interest rates have rendered homeownership more affordable than at any time since the 1970s, the ownership rate during 2012 fell for the eighth consecutive year to 65.4 percent from 66.1 percent, representing a net loss of 161,000 homeowners.
Each 10-year age group between 25 and 54 is at its lowest point in home ownership, and minority ownership rates have been hardest hit. The rate for African-Americans was 43.9 percent, its lowest level since 1995, while ownership among Hispanic (46 percent) and white (73.5 percent) households are at their lowest levels in a decade.
Minorities, particularly young adults, will contribute significantly to household growth through 2023 and make up the bulk of potential first-time homebuyers. Yet their ability to purchase a house will be limited due to reduced income and access to wealth. Tight credit and reform proposals for housing finance, such as raising the down payment requirement, could further narrow the path toward home ownership for young adult and minority households.
While annual household growth should hit 1.2 million through the rest of the decade?similar to 1990 rates?the composition of household growth will be very different. Aging Baby Boomer households are projected to increase by 9.8 million through 2023, driving most of the increase in households. However, the report notes that growth in numbers reflects the aging of existing households rather than the creation of new ones. Also, this age group will bring a ?significant shift? in the nature of demand for housing and home improvements.
?Meeting (seniors) needs will require modifications to existing homes, the expansion of transportation networks and supportive services, and additions to the housing stock aimed specifically at the senior population,? the report stated. ?Many older Americans are also heading into their retirement years with little financial cushion and may find it difficult to find suitable housing that fits their budgets.?
Real incomes declined for all demographic groups during the past 10 years; so much so that households under age 35 are earning at 1990 levels, and households between ages 34 and 54 have incomes lower than what comparable-aged households earned in 1971. The age group that typically should be in its peak income years?45 to 54 year olds?earned 6 percent less than what they made when they were 35 to 44 years old.
Those figures do not bode well for Americans trying to find affordable housing. Already 42.3 million households, or 37 percent, paid more than 30 percent of their pre-tax income for housing in 2011, and 20.6 million paid more than half, according to the Center?s report. Even the number of low-income households with full-time jobs and deemed severely burdened by housing costs increased from 38.6 percent to 42.4 percent between 2007 and 2011.
Income was a factor behind more households opting to rent. More Baby Boomers and married couples with children?typically a group with high home ownership rates?added to the net growth of renters. Overall, renter household growth since 2010 is on pace to surpass the 5.1-million gain seen in the early 2000s. The Center?s outlook for multifamily housing sees supply exceeding demand when new units under construction are ready for occupancy; but with a healthy level of demand, even those apartments could be absorbed without a substantial rise in vacancies.
?Given the depth of the housing market downturn, several challenges to a strong and sustainable recovery remain,? the report stated. ?Demand is closely linked with jobs and incomes, which are taking longer to rebound than in any previous cycle. While trending downward, the numbers of underwater homeowners, seriously delinquent loans, and excess vacancies are still in the millions. It will take several years for market conditions to return to normal. Until then, the housing recovery is likely to unfold at a moderate pace.?
More mortgage misinformation
Lisa Epstein, the foreclosure fraud investigator who uncovered the bank robo-signing scandal, recently discovered another example of improper document management by financial institutions that could produce more losses for mortgage bond investors.
Reuters reported that Epstein, through compiling property records and reports from mortgage servicers, found examples of mortgage servicers, such as Bank of America and Ocwen Financial Corp., incorrectly reporting houses still in foreclosure when they actually were sold to new buyers or the underlying mortgages were paid off. In some cases, the servicers charged bond trustees like Wells Fargo & Co., and Bank of New York Mellon monthly service fees for loans that had been paid off years before. The practice also disguised the need to write down the value of the loan.
If such errors are widespread, investors could be holding mortgage-backed securities with millions of dollars in unrecognized losses, which could lead to litigation. Already, Bank of America agreed to an $8.5-billion settlement with 22 investors?including Investment Management Co., and Blackrock Inc.?to end a lawsuit holding the bank liable for Countrywide Financial loans that were marketed as low-risk securities despite containing home loans with poor borrower histories and bad credit quality.
Vinyl Siding Institute releases insulated siding study
A study commissioned by the Vinyl Siding Institute attempted to measure the real-world performance of insulated siding on energy efficiency.
The ?Insulated Siding Energy Performance Study? conducted by Newport Ventures, Scenectady, N.Y., took five different detached single-family homes and installed five siding products from different manufacturers, with R-values ranging from R-2.0 to R-2.7, after removing existing siding and installing a water-resistive barrier.
The homes, located in Fort Collins, Colo., New Palestine, Ind., Severna Park, Md., Burnt Hills, N.Y., and New Paltz, N.Y., were measured for air tightness before the remodel and after the siding was installed. The test also used other energy-audit measures like infrared imagery and an analysis of utility bills, insulation levels, and equipment efficiency.
The study found that air leakage improvement across the five homes ranged from 3 percent to 24 percent, while declines in the consumption of natural gas or propane during heating season ranged from 1 percent to 11 percent. However, only the Colorado home showed statistically significant energy savings (11 percent).
?The amount of savings on future projects cannot be predicted with any large degree of confidence on this study alone,? the report concluded. ?Primary reasons for lack of statistical significance may be the lack of granularity provided by utility bills alone, variability in occupant behavior, and inconsistency in outdoor weather conditions.?
The study identified other opportunities for further research such as measuring the thermal performance of insulated siding installed over existing siding, evaluating the effectiveness of advanced air-sealing techniques while sheathing is exposed, and a cost analysis and comparison of insulated siding to other options like insulated sheathing.