Housing market surging

Housing market surging

Wednesday, August 11, 2021 from Floor Covering Weekly

Kermit Baker
Even as the U.S. economy continues to recover, the inequalities amplified by the pandemic remain front and center for the housing sector. Households that weathered the crisis without financial distress have been snapping up the limited supply of homes for sale, pushing up prices. At the same time, rising house prices are further excluding less affluent buyers from homeownership. Additionally, millions of households that lost income during the shutdowns are behind on their housing payments and on the brink of eviction or foreclosure. A disproportionately large share of these at-risk households are renters with low incomes and people of color.

These are some of the key conclusions from The State of the Nation’s Housing 2021, a new report from the Harvard Joint Center for Housing Studies. Even before the pandemic, household growth in suburbs and small metros was on the rise. The pandemic helped accelerate this growth among households looking to escape dense urban areas, households seeking more space as they were working remotely, as well among younger households who were ready to move into homeownership. The home-buying binge occurred despite historically tight supply. Inventories of existing homes for sale were already low heading into 2020, and the pandemic made matters worse by discouraging potential sellers from putting their homes on the market.

The combination of robust demand and limited supply lifted home prices to their fastest pace in over a decade. Additionally, home price gains continued to outrun income growth last year, accelerating housing affordability problems as the national price-to-income ratio rose to its highest level since 2006. These outsized increases have raised concerns that a home price bubble is emerging. However, conditions today are quite different than in the early 2000s, particularly in terms of credit availability. The current climb in house prices instead reflects strong demand amid tight supply, helped along by record-low interest rates.

Additionally, housing affordability remains an acute challenge for low-income renters. More than 80 percent of renters earning less than $25,000 were cost burdened in 2019 (spending more than 30 percent of their income for housing) and the majority spent more than half their income on housing. As a result of widespread income losses during the pandemic, 14 percent of all renter households were behind on their housing payments in early 2021. With so many renters in financial distress, there are concerns about an impending wave of evictions.

Looking forward, demand for homeownership is likely to remain robust as the huge Millennial generation continues to move through the prime ages for forming households and buying homes. Certain impacts of the pandemic on housing markets are probably temporary — most notably, the drop in high-end urban rental demand. Indeed, early signs suggest that the reopening of offices, universities, restaurants and other amenities is already bringing renter households back to city centers. However, the growing demand for suburban and exurban living may be a more enduring shift, particularly if working from home becomes common practice. If freed from the requirement to commute every day, many more households will seek out lower-cost housing away from employment centers. In the longer term, impending demographic changes cloud the housing outlook. Falling birth rates, sharply lower immigration, and higher-than-expected mortality rates have already left population growth at its lowest level in 100 years. Although this slowdown may help to alleviate the current imbalance between housing demand and supply, it also has serious implications for the broader economy.

Copies of The State of the Nation’s Housing 2021 are available to download for free at the Joint Center website (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].