National home prices reached an important milestone in 2016: They surpassed the prerecession peak, according to the latest State of the Nation’s Housing report, released Friday by the Joint Center for Housing Studies of Harvard University. Some markets even saw home price appreciation of more than 50 percent since 2000.
Tight supplies of for-sale and for-rent homes are fueling higher housing costs and adding to more pressing concerns about affordability, the report states. Nearly 19 million U.S. households devoted more than half of their income for housing in 2015, the most recent count, according to the report.
“While the recovery in home prices reflect a welcome pickup in demand, it is also being driven by very tight supply,” says Chris Herbert, JCHS’s managing director.
Despite seven years of construction growth, Herbert says the U.S. has still added less new housing over the last decade than in any other 10-year period going back to at least the 1970s. The rebound in single-family construction has been particularly weak.
“Any excess housing that may have been built during the boom years has been absorbed, and a stronger supply response is going to be needed to keep pace with demand—particularly for moderately priced homes,” Herbert says.
On average, 45 percent of renters in the nation’s metro areas could afford the monthly payments on a median-priced home in their market area. However, in several high-cost metros on the Pacific Coast, Florida, and the Northeast, that share fell to under 25 percent, the report notes.
The report urges that the future of U.S. homeownership depends on broadening the access to mortgage financing; the authors say this remains too restricted and is still reserved for those with great credit.
One welcome sign for the housing market: Household incomes are increasing, the report notes. This has helped reduce the number of U.S. households who pay more than 30 percent of income for housing, which most financial experts use as a benchmark to measure affordability. The number of households with housing cost burdens still remains higher today than at the start of the decade, and most of the improvement has been centered on the owning side rather than renting.
“The problem is most acute for renters,” Herbert says. “More than 11 million renter households paid more than half their incomes for housing in 2015, leaving little room to pay for life’s other necessities.”
Rental costs continue to outrun inflation in many markets. Rents did show signs of slowing in a few large metros, such as San Francisco and New York. But demand remains high and new supply is mostly centered on the high end and does not cater to the low- and moderate-income households, the report notes.
Authors of the JCHS report say they expect rental housing and entry-level homeownership to surge over the next decade as the millennial generation moves into their late 20s and early 30s.
“These young households will propel demand for a broad range of housing in cities, suburbs, and beyond,” the report notes. “The baby-boom generation will also continue to play a strong role in housing markets, driving up investment in both existing and new homes to meet their changing needs as they age.”
Source: “The State of the Nation’s Housing 2017,” Joint Center for Housing Studies of Harvard University (June 16, 2017)