The State of the Nation’s Housing, 2014: Rentals up, Homeownership Down, Minorities Become a Force

August 4, 2014
By Leighton Walter Kille, Journalist's Resource

The U.S. economy is on the mend, but the patient appears to still need substantial care. Jobs are being added at a snappy pace — 288,000 in June, with unemployment falling to 6.1% — but GDP growth remains weak, just 2.1%. And after gains in the crucial housing market in 2012 and 2013, construction starts declined 9.3% in June 2014 — not a good sign given housing’s importance to the economy as a whole. These trends affect all communities large and small, and for reporters covering these issues, nuance — and data — matter.

The latest report from Harvard’s Joint Center for Housing Studies, “The State of the Nation’s Housing, 2014,” explores the challenges facing the sector, which on average makes up nearly 5% of U.S. economic activity. The authors see a range of factors holding back housing demand and household formation, including tight credit, lingering unemployment, stagnating wages for those who do have jobs and rising student loan debt. All these in turn are suppressing economic growth.

Among the report’s overall findings:

  • The national homeownership rate fell to 65.1%, the ninth consecutive year of decline after it peaked at 69% in 2004. However, the drop was the smallest since 2008, 0.3%, indicating that the overall rate may be stabilizing.
  • The long-term decrease in homeownership was sharpest among younger adults: The rate for 25- to 34-year-olds fell nearly 8 percentage points from 2004 to 2013; for those 35- to 44 years old, the decrease was approximately 9 percentage points, and for middle-aged households, 4 percentage points.
  • Minority homeownership rates fell disproportionately from 2004 to 2013, dropping 6 percentage points for black households and 4 percentage points for Hispanics and Asians. For whites, the decline was just 3 percentage points.
  • At the same time, minorities make up growing a share of the first-time homebuyers: “At last measure in 2011, 32% of all first-time buyers were minorities, with Hispanics alone accounting for 14%. First-time homebuyers are also more likely to be foreign born (16%) compared with current homeowners (10%). This is particularly true among Hispanic households, where 49% of first-time buyers are immigrants.”
  • While the share of “underwater” mortgages has fallen significantly, more stringent credit requirements, rising home prices and an increase in interest rates are discouraging potential buyers. The rate for 30-year fixed mortgages rose from 3.6% to 4.4% over 2013, and the average score for Fannie Mae-backed mortgages rose from 694 in 2007 to 751 in 2013.
  • Rising student loan debt is putting a significant burden on younger would-be buyers: “Between 2001 and 2010, the share of households aged 25-34 with student loan debt soared from 26% to 39%, with the median amount rising from $10,000 to $15,000 in real terms…. For these borrowers, the need to pay off these outsized loans will likely delay any move to homeownership.”
  • Median household income continues to fall, dropping 1.4% in real terms in 2012, the lowest level in nearly two decades. “The steepest declines have been among younger adults. The median income for households aged 25-34 fell an astounding 11% from 2002 to 2012, leaving their real incomes below those of same-aged households in 1972.” read more

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"The authors see a range of factors holding back housing demand and household formation, including tight credit, lingering unemployment, and stagnating wages."