Home sales and housing starts staged an uneven comeback starting in early 2009, according to the State of the Nation's Housing 2010 report released by the Joint Center for Housing Studies of Harvard University. Improved affordability for first-time homebuyers and extraordinary government intervention helped spark a turnaround and drove all of the increase in existing home sales last year, but record foreclosures continued to pressure markets and millions of homeowners.
Despite some positive signs early in the spring buying season this year, housing continues to face significant challenges.
"Many factors are still weighing heavily on the market," says Nicolas P. Retsinas, director of the Joint Center for Housing Studies. "Elevated vacancy rates, record foreclosures, the expiration of the homebuyer tax credit and continued high unemployment are all causes for concern."
Very low mortgage interest rates and recovering labor markets, however, should shore up sales and housing starts once an expected dip due to the expiration of the federal homebuyer tax credit passes.
"If history is a guide, what happens with jobs will matter the most to the strength of the housing rebound," says Eric S. Belsky, executive director of the Joint Center for Housing Studies. "Right now, economists expect the unemployment rate to stay high, but if employment growth surprises on the upside or downside, housing numbers could, too."
The annual report states that even if the recovery in sales and residential construction flourishes, the adverse consequences of the recession and the financial crisis will linger. An estimated one in seven homeowners have homes worth less than what they owe on their mortgages and nearly five million need their home prices to rebound by 25 percent before they are back above water. In addition, it will take time to work through all the homes in foreclosure.
Despite falling home prices, loan modifications and softening rents, the downturn actually increased the number of households spending half or more of their income on housing from the 18.6 million reported in 2008.
Both housing policy challenges and opportunities will abound in the years ahead, according to the study. Chronic housing affordability problems and the long tail of the foreclosure crisis are major concerns, but housing offers some excellent opportunities for energy savings as the nation strives to reduce carbon emissions.
"Not only can new green building standards and innovative architectural designs help reduce energy consumption in the next generation of homes, there are opportunities to wring major savings out of the existing housing stock," says Mohsen Mostafavi, dean of the Harvard Graduate School of Design. "Today's homeowner has the ability to significantly reduce home energy costs through environmentally conscious building materials and design approaches."
The Joint Center for Housing Studies is Harvard's center for information and research on housing in the United States. Established in 1959, it is a collaborative unit affiliated with the Graduate School of Design and Harvard's Kennedy School of Government.
For information, visit www.jchs.harvard.edu.
This article originally appeared in the August 2010 issue.