The U.S. housing recovery should regain its footing this year, concludes The State of the Nation’s Housing report released by the Joint Center for Housing Studies at Harvard University. Tight credit, elevated levels of unemployment, and elevated student loan debt among young Americans are moderating growth and keeping millennials and other first-time homebuyers out of the market.
In a webcast (see below), the Joint Center’s research director Christopher Herbert said, “The key thing for the housing market is jobs. Jobs translate into household formation, and household formation translates into growth in the housing stock.”
According to the report, young Americans—saddled with student loan debt and falling incomes—continue to live with their parents. Some 2.1 million more adults in their 20s lived with their parents in 2013, although some have begun to question that number, as the U.S. Census Bureau may be miscounting people who are merely living on campus.
Nonetheless, the number of households headed by people in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing. “Ultimately, the large millennial generation will make their presence felt in the owner-occupied market,” says Daniel McCue, research manager of the Joint Center, “just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutive year in 2013.”
“Young people are always important in the housing market, because it’s young people who are starting out in life, who are adding incrementally to housing demand,” said Herbert. “They are also important because they allow other moves up the housing market. So if I’m someone looking to trade up, I’ve got to find another first-time buyer to take my home before I can move.”
In addition, the report (and an interactive map on the Joint Center’s website) highlights the ongoing affordability challenge facing the country, as cost burdens remain near record levels and over 35 percent of Americans spend more than 30 percent of their income for housing. The situation is particularly grim for renters, 50 percent of whom are cost burdened and 28 percent of whom are severely cost burdened (meaning they spend over half of their income for housing). “When available, federal rental subsidies make a significant difference in the quality of life for those struggling the most,” says Herbert. “Between 2007 and 2011, the number of Americans eligible for assistance rose by 3.3 million, while the number of assisted housing units was essentially unchanged. Sequestration forced further cuts in housing assistance, which have yet to be reversed.”