Housing market finally gains traction

As reported in Issue: FCW Global July 2016, Posted Date: 7/21/2016; Author(s): Kermit Baker:

With household growth picking up, housing should buoy our slowing economy. Although homeownership rates are still falling, the bottom may be in sight as the lingering effects of the housing crash continue to dissipate.

Meanwhile, rental demand is driving the housing recovery, but tight markets have added to already pressing affordability challenges. These are some of the key findings from the Joint Center for Housing Studies’ recently released The State of the Nation’s Housing – 2016. By many measures, the U.S. housing market has recovered substantially from the crash.

Home values are nearly back to their previous peak in nominal terms, although still down nearly 20 percent in real terms. The uptick in prices has helped to reduce the number of homeowners underwater on their mortgages from 12.1 million at the end of 2011 to 4.3 million early this year. Delinquency rates have also receded, with the share of loans entering foreclosure at its lowest level since 2000. Given the size and age of the adult population and under normal economic conditions, roughly 1.2 million new households would have formed on average each year in 2007–2013. But the actual increase was just half that number as the weak economy made it difficult for young adults to live on their own and for immigrants to settle in the United States. The U.S. homeownership rate has tumbled to its lowest level in nearly a half-century.

Now in its seventh year, the U.S. economic recovery is flagging in the face of a strong dollar, a weakening global economy, and low commodity prices. But as household growth continues to gain momentum, the housing sector should be a key source of economic growth. Factoring in the need to replace older units and meet demand for vacation homes and other uses, housing construction should average at least 1.6 million units a year over the next decade. This level of activity would provide an important spur to the economy. Copies of The State of the Nation’s Housing 2016 are available to download for free at www.jchs.harvard.edu.