The State of the Nation’s Housing
Wednesday, December 23, 2020 from Floor Covering Weekly
These are some of the key findings from the Joint Center for Housing Studies’ recently released State of the Nation’s Housing 2020. As 2020 began, the residential market was finally beginning to pick up momentum after underperforming for most of the past decade. Single-family construction started the year at its fastest pace since the Great Recession. The national homeownership rate had climbed back up to 64.6 percent, an increase of 1.2 percentage points from 2016. More importantly, the number of homeowner households grew at a 1.3 million average annual rate over this period, more than making up for nearly a decade of decline. Much of this growth was driven by younger adults, bolstered by the movement of the Millennial population into the prime homebuying age group of 25–34.
However, once the pandemic hit and the economy shut down, both new and existing home sales plummeted. But the market for owner-occupied homes then made a surprisingly strong rebound, with total sales well above year-earlier levels by summer. Still, the supply of homes for sale has not kept up with demand, shrinking already tight inventories. With strong competition for the limited stock of homes for sale and mortgage rates at record lows, house prices continued their upward ascent, exceeding the previous peak prior to the Great Recession by more than 20 percent.
While high unemployment would normally be a significant headwind for the market, the combination of low inventories and low interest rates will likely keep upward pressure on home prices. However, several factors could make it difficult for some potential homebuyers to take advantage of today’s strong housing market. In particular, house prices continue to outrun incomes, pushing up the national price-to-income ratio to 4.3 in 2019. Indeed, price-to-income ratios are setting new highs in 39 of the nation’s 100 largest metros. And even if low interest rates help to offset these high prices, the amount of savings needed for downpayment and closing costs still presents a significant hurdle for first-time buyers.
While the pandemic is presenting challenges for many households to move into homeownership, it also is creating problems for many current owners. Over a third of all homeowners reported having lost income between March and the end of September, the shares are as high as 44 percent among owners earning less than $25,000, 41 percent among Black owners, and 49 percent among Hispanic owners. For many of these homeowners, the income losses come on top of higher cost burdens, leaving them struggling to pay their mortgages once the shutdown started.
While many homeowners are facing growing problems, the economic fallout from the pandemic has amplified the rental affordability crisis. Over half of lowest-income renters lost wages during this period, compared with 41 percent of all households. Not surprisingly, about one in five renters earning less than $25,000 are behind on rent, compared with 15 percent of all renters and just 7 percent of renters earning more than $75,000. This is exacerbating an already serious problem. With rent increases continuing to outpace income gains, some 20.4 million renter households paid more than 30 percent of their incomes for housing in 2019. More than four-fifths of households with incomes under $25,000 were at least moderately cost burdened in 2019, including 62 percent paying more than half their incomes for housing.
Copies of The State of the Nation’s Housing 2020 are available for no cost on the web site of the Joint Center for Housing Studies (www.jchs.harvard.edu)
Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University. He may be reached via e-mail at [email protected]