Expert Commentary

The state of the nation’s housing, 2013

2013 report by Harvard University on the U.S. housing market, including demographic drivers, homeownership rates, rentals and continuing challenges.

Home construction (

While the Great Recession in the United States officially ended in 2009, it has been a long, slow recovery for the economy overall and housing in particular. The subprime collapse was a significant contributor to the crisis, after all, and because of the severity of the economic downturn, a range of factors have kept a housing recovery in check — high unemployment and foreclosure rates, tighter credit standards and even a growing preference for renting.

Despite the economic headwinds, a 2012 report from the Joint Center for Housing Studies at Harvard University found some signs of hope: The previous year had been one of the worst for housing since 1968, and the researchers found that by 2012, the market was showing signs of recovery — home construction, sales and remodeling expenditures all increased. This year’s edition, “The State of the Nation’s Housing, 2013,” sees that trend continuing, with a widespread turnaround finally underway. The report’s findings are organized into five main sections: housing markets, demographic drivers, homeownership, rental housing and housing challenges.

Overall trends from the 2013 report include:

  • After broad declines in 2011, all major U.S. house price indexes rose significantly in 2012. As of March 2013, the median house price was up 11.6% over the previous year.
  • Between 2011 and 2012, sales of existing homes rose 9.4%, to 4.66 million. During the same period, new home sales rose for the first time in nearly seven years, up 20% (368,000) from 2011’s low. With sales levels rising, as of January 2013 the stock of new homes for sale represented only four months supply.
  • Single-family construction starts increased 24% in 2012, to 535,300, but the level remains low — just half the average in the 1980s and 1990s. Multifamily starts jumped nearly 38% in 2012, to 245,300 units. This was the second straight year of double-digit gains and more than double the low in 2009.
  • In 2012, for the first time since 2005, construction and home-improvement spending contributed positively to U.S. gross domestic product, “adding more than a quarter-point to economic growth and amounting to a healthy 12% of the total increase in the economy.”

The number of “underwater” mortgages continues to fall:

  • The number of homeowners owning more on their mortgages than the properties are worth fell 1.7 million, to 10.4 million, from 2011 to 2012.
  • In the first quarter of 2013, the share of loans at some stage of delinquency but not yet in foreclosure declined to 7.3%, well below the 10.1% peak in the first quarter of 2010. Still, more than 1.4 million homes were in foreclosure, representing 3.6% of all mortgages, more than four times the 1974-99 average of 0.8%.
  • In combination with low mortgage interest rates, the Home Affordable Refinance Program (HARP) allowed 1.1 million underwater and low-equity homeowners to reduce their monthly mortgage payments by refinancing in 2012.

Interest rates are at historically low levels, spurring a boom in refinancing, even as requirements remain relatively stringent and minorities struggle to access credit markets.

  • Interest rates on 30-year fixed-rate mortgages dropped to 3.66% in 2012.
  • Only 17% of homeowners who refinanced in 2012 took cash out, the lowest share in records dating back to 1985.
  • “For most of the 2000s, credit scores on GSE-backed loans averaged around 720 while those on FHA loans averaged around 650; with the onset of the housing crisis in 2008, credit scores in these market channels turned up sharply, to roughly 760 and 710, respectively.”
  • The average credit scores of conventional mortgage applicants denied credit in the first quarter of 2013 were 722 for refinances and 729 for purchases.
  • For conventional home purchases, mortgage denial rates in 2011 for African-American were 36.9% — more than twice the 14% rate for whites. For Hispanics, the denial rate was 10.4 percentage points higher than for whites.

While the home prices are rising and construction starts are up, homeownership rates continue to fall as significant numbers of Americans are choosing to rent:

  • In 2012 the U.S. homeownership rate fell for the eighth straight year, from 66.1% to 65.4%, while the absolute number of homeowners dropped 161,000. Overall, the share of households owning homes is now at its lowest point since 1976.
  • “At 43.9%, the homeownership rate for African-American households is at its lowest level since 1995 and both the Hispanic homeownership rate (46.0%) and the white homeownership rate (73.5%) are at their lowest values in a decade.”
  • Households that rent increased by more than 1.1 million between 2011 and 2012, representing all of the net growth in households during that time.
  • Even groups with traditionally high homeownership rates, including married couples with children, high-income households and white households, are choosing to become renters.
  • As more households rent, rents themselves rise: April 2013 marked the 34th consecutive month of growth in rents as measured by the consumer price index, and the 15th consecutive month of year-over-year increases of 2.5% or more.

Whether people own or rent, housing costs remain a significant portion of household expenses:

  • In 2011 42.3 million households (37%) paid more than 30% of their pre-tax income for housing. Nearly 20.6 million (17.9%) paid more than 50% of pre-tax income for shelter.
  • Nearly 70% of households with annual incomes of less than $15,000 (roughly equivalent to year-round employment at the minimum wage) pay more than half of their income for housing costs.
  • In California, New York and New Jersey, more than 22% of households pay more than 50% of pre-tax income for housing, as median home values and rents in these states are among the highest in the country.
  • Severely cost-burdened low-income families spend about two-thirds as much on food, half as much on clothing, one-fifth as much on health care, and half as much on pensions and retirement as similar families living in housing they can afford.

While the overall housing situation is turning around, economic factors continue to weigh on lower-income, minority and younger households.

  • In 2011, median household income fell 1.5% in real terms from the year before and stands 8.1% below the 2007 peak. “With the exception of those 65 and over, median household incomes fell across all age groups in 2010-11, with the sharpest drop among younger households.”
  • The average home value for Hispanic owners dropped nearly $100,000 (35%) in real terms between 2007 and 2010, while the decline for black owners was nearly $69,000 (31%). By comparison, average values for white homeowners fell 15%.
  • By 2010, the median net worth of a white homeowner, at $214,500, was more than 2.5 times that of a black homeowner and 2.8 times that of a Hispanic homeowner.
  • The number of adults under 30 with student loan debt increased 39% between 2005 and the end of 2012, with the average amount owed rising from $13,300 to $21,400 (60.9%). For adults in their 30s, the number of borrowers was up 76% and average debt rose from $20,000 to $29,400 (47%).

Keywords: municipal, consumer affairs

About The Author