Since 1988, the Joint Center for Housing Studies at Harvard University has provided an overview of housing market conditions in the United States. As the report marks its 30th anniversary, this year’s report suggests the housing market is overbought, immobile, and unequal.
The influential Harvard think tank even believes the American housing sector is broken, as “income inequality has helped to fuel today’s housing affordability challenges.”
The State of the Nation’s Housing report, released Tuesday, provides several metrics of the health of America’s housing market and discovers that, despite some short-term growth since the financial crisis of 2007–2008, the long-term outlook is rather gloomy.
Nevertheless, there are several challenges highlighted in the report. Homeownership rates among millennials are significantly lower than three decades ago, as student debt and the gig-economy have severely limited the economic mobility of the millennials.
Also, the share of cost-burdened renters is much higher, with almost 50 percent of all renters in America paying more than 30 percent of their income for housing. Hence, why the personal savings rate has collapsed over the years. In the last 30 years, the national median rent rose 20 percent faster than overall inflation and the median home price rose 41 percent quicker.
The HuffPost describes the Harvard report as a “ticking time bomb at the heart of the American economy,” as the affordability crisis in housing, could be in the final countdown — with accelerated wealth inequality developing in the S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index, a home price index for 20 major U.S. metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa and Washington, D.C.
In return, the affordability crisis in housing has left many Americans with poor balance sheets ahead of the next recession. The charts that follow illustrate some of Harvard’s most compelling findings:
Figure 6: The Sharp Divergence in Housing Costs and Incomes Has Fueled a Long-Term Increase in Cost-Burdened Renter
“At last measure in 2016, some 38.1 million households spent more than 30 percent of their incomes on housing (the standard definition of cost-burdened). While down by 800,000 from 2015 and by 4.6 million from the peak in 2010, the number of cost-burdened households was still some 6.5 million higher in 2016 than in 2001,” the report said.
The Harvard study found that the fastest rise in home prices is at the low end of the market. Gentrification of low-income metro areas selling for less than 75 percent of the median price, have seen recent appreciation at twice the rate of high-end homes.
“Rising prices have made homes less affordable, particularly at the low end of the market. In 2017, real home prices for the lowest-cost homes (selling for 75 percent or less of the median sales price) were up 6.9 percent—more than twice the 3.3 percent increase in prices for highest-cost homes (selling for at least 125 percent of the median). Between 2000 and 2017, real prices for the nation’s lowest-cost units soared nearly 80 percent, compared with 28 percent for highest-cost units,” said the report.
Figure 11: Inventories of Homes for Sale Continue to Shrink in Markets Across the Country
Figure 13: Median Home Prices in Most Western Metros Are Five Times Greater than Incomes
Harvard researchers also found that Americans are not moving, and are too lazy to chase opportunity around the country. The study believes that is due to the legacy of the financial crisis, which left many people in homes they could not afford. And now, the lessons of 10 years ago, many people are thinking twice about moving or upgrading to larger homes.
Figure 2: Millennial Homeownership Collapses
Figure 3: …and Black Households Are Near 30-Year Lows
Despite the black unemployment rate tagging a record low ( as we know the numbers are probably cooked), there is concern that inequality is widening as black homeownership rate recently collapsed to a three-decade bottom.
Housing costs are crushing personal budgets. Americans are unable to spend money on the basics necessities: food, transportation, and healthcare.
Figure 34: When Burdened with High Housing Costs, Low-Income Households with Children Spend Little on Other Basic Necessities
Figure 35: About a Third of All Households in Most Metros Are Cost Burdened
Figure 38: Although Improving in Much of the Country, Homelessness Is Increasing in Several Large, High-Cost Metros
Watch the animated map below, as the housing affordability crisis erupts across the United States.
What does this all mean for the future of home ownership?
Affordable housing is fundamental to personal well-being and security. As the report shows, this is not the case today, with a housing affordability crisis ravaging many metros. Interest rates are moving to the upside, pointing to the idea that the Federal Reserve realizes that housing prices have gotten out of hand once again. To fix this crisis, housing prices need to substantially correct or personal incomes need to rise quickly, which ever one comes first…