Harvard Study: Housing Slump is Severe, but Outlook May be Optimistic?

Harvard’s Famous Business School

Let me rephrase: the outlook isn’t optimistic, per se, but rather, it may be more optimistic than what we may be thinking or than what our worst nightmares suggest.  That’s about what I can discern from the new study by the Joint Center for Housing Studies at Harvard, “The State of the Nation’s Housing.” Evidently, the study does not aim to be conclusive.  Rather, it compiles a broad array of metrics and empirically gathered data that address America’s housing crisis.

The study is significant on at least two fronts: for starters, it provides much needed in-depth data concerning widely observed phenomena in the housing market, such as a the “rental rebound,” or the rapid rise in demand for rental properties as a result of buyers’ shift towards a preference for renting, which strongly contrasts with consumer behavior from the early part of the decade.  The study also presents detailed figures on the affordability problem for would-be buyers as well as graphs depicting the unfortunate acceleration in vacant properties nationwide.

Beyond these trends, which housing experts had widely discovered before the study’s publication, the study also succeeds in extrapolating upon less examined factors and less obvious residual effects of the housing crisis.  For instance, the authors look at the ways in which demographic trends have exacerbated the housing crisis, a theme that is not often considered in housing discussions.

Here, the authors point out the severe deficit in buying from the generation they deem as “echo boomers,” or those Americans born in the year 1986 and afterward.  (This would put the oldest echo boomer at twenty-five).  Apparently, while this generation is “entering their peak household formation years,” household growth plummeted among this group in the second part of the last decade.  (As an echo boomer myself, I can think of only one peer of mine who owns a mortgage).  The authors, while pointing out that the huge influx of young adults will likely harm the housing market further, also speculate that the effect will be more pronounced when coupled with the retirement of the baby boomers, who will no longer contribute to the market.

The authors also provide a handy graph demonstrating the strong effect that the expiration of the first-time homebuyer tax credit had on the market (see the graph below).  According to the authors, once the timeframe for the tax credit lapsed, many “would-be homeowners were locked out at the top of the market.  And were then scared away as both home prices and employment plummeted.  The question now is whether, without the incentive provided by tax credits, first-timers will have the will to buy.”  Other topics examined include the rising utilities costs for low-income tenants, the decreasing supply of low-income housing, and the financing habits of homeowners from various income groups, to name just a few,

However, the tone of the study’s conclusory “Outlook” section contrasts sharply with virtually all of the previous data presented.  The authors state, “while still under the shadow of the foreclosure crisis, the housing market may be starting—however slowly—to turn the corner.”  They then introduces merely a single statistic to back this bold and frankly bizarre contention: that the amount of loans at least ninety days delinquent but not in foreclosure are falling.  Are you convinced?

While I can’t possibly summarize everything in this detailed analysis, I would encourage readers to the take a look at the study here.

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