Housing Boom Still Hot
June 26, 2002
But 'Torrid Pace' Of Home Price Appreciation Unlikely To Continue
By Bridget McCrea
Inman News Features
The nation's housing sector is poised to set new records for home building, home sales and aggregate home equity in the coming years, according to a report released today by Harvard University's respected Joint Center for Housing Studies.
The report, The State of the Nation's Housing: 2002, stated that strong growth in immigrant and minority households will result in 22 million more households purchasing their own homes and 1.6 million more households renting housing in the next 20 years.
Household formation is expected to average 1.2 million net new households each year through 2020, according to the researchers. White families, which dominated the home-buying market throughout the postwar period, will account for less than 30 percent of net new homeowners added by 2020 while minorities will account for almost two-thirds of the growth in homeowners, climbing 59 percent to more than 41 million households.
Homeowners will account for the lion's share of household growth, rising in number from just over 70 million in 2000 to 92.3 million by 2020, according to the center.
Housing prices in eight of the nation's 50 largest metropolitan areas have risen at an astounding inflation-adjusted pace of 30 percent or more since 1997. In San Francisco, for instance, home prices soared more than 55 percent, more than two-and-a-half times faster than income growth.
But the Harvard researchers said that "torrid pace" of home price appreciation is unlikely to continue. Home prices nationwide have outdistanced homeowner income growth for several years, particularly in such red-hot housing markets as San Francisco and Boston, and house price appreciation has been "more subdued" in other areas.
Home prices and historically low mortgage interest rates helped consumers keep faith in the housing sector, pushing home sales, home building and home improvement spending to record-setting levels.
Last year ended on a strong note as annual sales of existing single-family homes reached an all-time high of 5.3 million units, and annual sales of new homes moved up 3 percent to 906,000 units.
Real estate sales associates reaped the benefits when this surge in demand pushed the sales price of a typical existing home higher than $150,000 for the first time.
The aggregate value of homes in the United States reached a new high of $12 trillion, more than 30 percent higher than 1990's figure in inflation-adjusted terms.
Home builders also found benefits. Single-family home starts totaled 1.27 million in 2001, the best showing since 1978, when the Baby Boom generation's demand for housing pushed starts above 1.4 million.
"Last year alone, the housing sector set records for existing home sales and the value of single-family construction while price appreciation pushed the aggregate value of homes to a record high $12 trillion dollars and home equity to a record $6.7 trillion," said Nicolas P. Retsinas, director of the Joint Center for Housing Studies.
But the report's findings aren't all rosy.
Mortgage defaults and foreclosures are on the rise among recent lower income home purchasers, especially those households who accessed new forms of higher-cost sub-prime mortgages to acquire their first home, according to the report.
The center predicts a growing number of lowest-income borrowers who have less than 5 percent equity combined with the increased use of high-cost mortgage products could undo some recent homeownership gains and introduce new risks to the overall market.
"Increasing defaults and foreclosures are not only bad for individual families, but they also threaten to destabilize selected market areas by exerting downward pressure on home sales, production and eventually home prices," said William C. Apgar, a senior scholar with the center.
The Joint Center for Housing Studies is one of the nation's leading centers for information and research on housing in the United States. The center was established in 1959 and is a collaborative unit affiliated with the Harvard Design School and the Kennedy School of Government. The State of the Nation's Housing report was launched in 1988 and serves as a reference for public policymakers and private decision-makers in the housing industry.
Copyright: Inman News Service