[User] IMMIGRATION’S CONTRIBUTION The foreign-born population has been a key component of household growth over the last decade, fueling large gains early in the decade but dragging down growth since the recession. According to Current Population Survey estimates, The pace of household growth—a key driver of housing demand—accelerated in 2012, boosted in part by an increase in immigration. At the same time, though, the lingering impacts of the Great Recession continue to limit household mobility and therefore housing turnover. Income growth also remains weak, especially among minorities and the youngest generation of adults. Given the important role that these groups play in housing markets, improvement in their economic progress would provide a strong lift to the recovery. the number of foreign-born households rose nearly annually in 2001–07 and accounted for 30 percent of overall household growth. But beginning in 2008, the influx of immi grants slowed sharply as the Great Recession took hold. High unemployment and tepid wage growth also reduced house hold formation rates among the foreign-born population already residing in the United States. By 2009 and 2010, the number of foreign-born households showed a net decline and the foreign-born contribution to household growth in 2007–10 fell to just 6.0 percent. HOUSEHOLD MOBILITY ON THE DECLINE The share of households that move in a given year is a funda mental driver of housing market activity, setting the pace of home sales and the turnover of rental housing. In line with long- term trends as well as the short-run impacts of the recession and housing bust, domestic mobility rates hit new lows in 2011. The American Community Survey reports that just 13.0 percent of households moved within the United States during the pre ceding 12 months, down from 13.2 percent the year before and 13.8 percent in 2007 (prior to the recession). HOME EQUITY AND WEALTH DISPARITIES The rebound in home prices in 2012 was welcome news to homeowners, helping to restore some of their lost housing wealth. The increase in equity was also good news for the economy, because consumer spending tends to rise with gains Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey and Intercensal Population Estimates. The recession-induced drop in home values has been especially damaging to minority and low-income households. On aver age, real home values for Hispanic owners plummeted nearly percent) between 2007 and 2010, while the decline for black owners was nearly percent). By compari son, average values for white homeowners fell just 15 percent over this period. Moreover, white homeowners still had in home equity on average in 2010—about twice the amount that blacks and Hispanics held. Indeed, most renters have little wealth of any kind. The real median net worth among renters in 2010 was $5,100, essentially unchanged from $5,300 in 2007. Minority renters have particu larly low levels of wealth: the median in 2010 was just $2,100 for black renters and $4,500 for Hispanic renters, substantially less than the $6,000 for white renters. Moreover, cash savings account for little of this net worth (less than $1,000), leaving all of these renters without much cushion against emergencies, let alone funds for a downpayment on a home. For today’s younger households, student loan debt may make the transition to homeownership more difficult. According to the Federal Reserve Bank of New York, the number of young adults under age 30 with student loan debt outstanding increased by 39 percent between the start of 2005 and the end of 2012, with the average amount rising from $13,300 to $21,400. However, Notes: Data exclude renters and households with zero or negative income. Income quartiles are equal fourths of all households ranked by income. White, black, and other households are non-Hispanic; Hispanic households can be of any race. Source: JCHS tabulations of Federal Reserve Board, 2010 Survey of Consumer Finances. 15 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY concerns over rising student loan debt often overlook the fact that the trend also affects older households. The increase was even larger among adults in their 30s, with the number of bor rowers up 76 percent and average debt climbing from $20,000 to $29,400. Moreover, of the $600 billion increase in student loans outstanding in 2005–12, fully 38 percent was among households over age 40. Since many of these older households already own homes, the sharp rise in student loan debt could affect their ability to meet their mortgage obligations. STAGNANT INCOMES A key factor in the relatively modest housing recovery is the persistent weakness in incomes, which has slowed household growth and limited how much people can pay to rent or buy homes. At last measure in 2011, median household income fell another 1.5 percent in real terms to stand 8.1 percent below the 2007 peak and 6.7 percent below the 2001 level. With the excep tion of seniors aged 65 and over, median household incomes fell across all age groups in 2010–11, with the sharpest drop among younger households. While rents have moved up in recent years, there are limits to how much they can rise without an increase in households’ ability to pay. In addition, weak income growth has no doubt had an impact on the recovery in homeownership, limiting the ability of would-be buyers to take advantage of historically low costs of owning. While the economy continues to add jobs ● 2001 ● 2007 ● 2011 Note: Dollar values are adjusted for inﬂation by the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, Current Population Surveys. THE STATE OF THE NATION’S HOUSING steadily, albeit slowly, the unemployment rate remains well above what is needed to put upward pressure on wages. The rollback in homeownership rates has hit some groups harder than others. On the one hand, homeownership rates for households aged 65 and over continued to increase in 2012, rising to the highest level on record. With older households making up a larger share of the adult population (thanks to the aging of the baby boom), the high homeownership rates among older households helped to slow the decline in the national rate. But on the other hand, homeownership rates for households in the 25–54 year-old age group were at their lowest point since recordkeeping began in 1976. Even as home prices increased last year in most metros, the gains were not enough to offset the improvement in afford ability created by lower interest rates. Indeed, home prices had to rise by at least 10 percent to drive monthly payments higher year-over-year. Thus, monthly payments for a newly purchased median-priced home declined in 80 percent of the metros where home prices had increased in 2012. But in places like Phoenix, rapid appreciation pushed monthly payments on the median- priced home up by 13.3 percent. In San Francisco and Miami, a more moderate 11.9 percent rise in prices meant a 1.7 percent increase in mortgage payments. REFINANCING SURGE The drop in interest rates spurred refinancing activity last year. According to estimates from FHFA, refinancing volumes soared 42 percent in nominal terms to $1.4 trillion in 2012, the highest level since 2006. With little change in the volume of purchase Source: US Census Bureau, Housing Vacancy Surveys. 19 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY mortgages, refinances accounted for 72 percent of annual mort gage originations. CONTINUING CREDIT CONSTRAINTS Access to credit remained limited in 2012. The sharp rise in average credit scores for loans guaranteed by the GSEs and FHA is a telling sign. For most of the 2000s, credit scores on GSE-backed loans averaged around 720 while those on FHA loans averaged around 650. With the onset of the housing cri sis in 2008, credit scores in these market channels turned up sharply, to roughly 760 and 710, respectively. In large mea sure, this trend reflects the evaporation of loans to borrowers with weaker credit histories. In 2007, borrowers with credit scores below 620 accounted for 45 percent of FHA loans. By the end of 2012, that share was under 5 percent. Part of the intent of higher premiums for FHA loans is to encourage the return of private capital to the housing mar ket, but borrowers who cannot meet conventional under writing standards have little choice but to pay these higher costs. Other options available to credit-constrained borrow ers are programs offered by state housing finance agencies and a variety of nonprofit lenders that allow higher LTVs and flexible underwriting, but these programs remain fairly small in scale. In 2001, loans securitized into private-label securities or held in bank portfolios accounted for nearly half of loan originations. Their market share rose to about two- thirds at the height of the housing boom before retreating to the low single-digits. Beginning in 2009, government-backed loans have accounted for roughly 90 percent of all originations. While the private securities market was still moribund in 2012, portfolio lending by banks showed its first substantial increase Notes: Black and white households are non-Hispanic. Hispanics can be of any race. Source: JCHS tabulations of 2011 Home Mortgage Disclosure Act data. PERSISTENT MORTGAGE DISTRESS The foreclosure crisis is finally receding. In the first quarter of 2013, the share of loans at some stage of delinquency but not yet in foreclosure declined to 7.3 percent, well below the 10.1 percent peak in the first quarter of 2010. The majority of the decline is due to the drop in the share of seriously delinquent loans (with payments 90 or more days overdue). Meanwhile, the share of loans 30-days delinquent was not far above the pre- crisis average. Although still elevated, 60-day delinquency rates were down 36 percent from the peak. The serious delinquency rate for prime loans, which make up the largest share of past-due mortgages, declined from 1.8 percent in the first quarter of 2012 to 1.6 percent in the first quarter of 2013. At the same time, the serious delinquency rate for FHA loans declined from 5.3 percent to 4.2 percent—a 16 percent drop. Although down in 2012, the rate of serious delinquencies in the subprime market increased in the first quarter of 2013. Despite concerns that there would be a surge in proceedings following announcement of the National Mortgage Settlement in March, foreclosure starts in fact trended down throughout the year. By the end of 2012, the number of foreclosures stood at 1.49 million—the lowest annual total since 2007. The pace of foreclosure starts continued to slow in early 2013, dipping to a 1.15 million annual rate in the first quarter. Although affordability is at a 40-year high, tight credit markets remain a challenge for would-be buyers. The emerging rebound in housing prices, coupled with steady job growth, may restore lender confidence that borrowers will be able to repay their loans and that the value of the collateral will exceed the debt if prob lems arise. But private lending activity is unlikely to accelerate for some time. The release in early 2013 of the qualified mortgage rule, defining standards for a borrower’s ability to pay, helped to remove one source of uncertainty. Still unknown, however, are risk retention standards for private loan securitizers and new capital standards for institutions holding mortgage-related investments under the Basel III Accord. The future of the GSEs is also on the table, along with what form—if any—a broad federal guarantee in the mortgage market might take. All of these deci sions affect the risks and returns of private investors, and the lin gering uncertainty continues to slow their return to the market. THE STATE OF THE NATION’S HOUSING STRENGTHENING RENTER DEMAND The Housing Vacancy Survey reports that the number of renter households increased by more than 1.1 million in 2011–12, the eighth consecutive year of expansion and yet another year when renters accounted for all net household growth. While this rapid growth may not be sustainable, it attests to the unprecedented strength of rental demand. In addition, married couples with children—a family type with traditionally high homeownership rates—have contributed an increasing share of renter household growth over the last five years. Meanwhile, households in a broader range of income groups have also become renters. In fact, after having declined sharply during the boom, nearly a third of the growth in renter households in 2007–12 was among households in the top two Rental housing markets experienced another strong year in 2012, with the number of renter households rising by over 1.1 million and marking a decade of unprecedented growth. New construction and conversions of formerly owner- occupied single-family units into rentals also picked up. Robust demand has reduced vacancy rates and supported higher rents in most markets—in turn, improving the balance sheets of property owners and helping to limit multifamily mortgage delinquencies. TIGHTENING RENTAL CONDITIONS Rental markets across the country are tightening, pushing up rents at the national level and across a majority of markets. The HVS median asking rent for vacant units in 2012 stood at $720, the highest level in US history, and the uptrend continued in early 2013. The consumer price index for rent of primary residence rose by 2.7 percent in nominal terms from April 2012 to April 2013, outpacing overall inflation of 1.1 percent. As of that month, the index had been on the rise for 34 consecu tive months, with year-over-year increases at or exceeding 2.5 percent for 15. More limited data from MPF Research—covering rents for professionally managed buildings with five or more units, adjusted for concessions—indicate that nationwide rents were up 3.0 percent on average in the fourth quarter of 2012 from a year earlier. The US rental vacancy rate stood at 8.7 percent in 2012, down Source: JCHS tabulations of US Census Bureau, Decennial Censuses and Housing Vacancy Surveys. Across structure types, the steepest declines were among larger multifamily buildings, which had also posted the highest vacan cy rates during the worst years of the housing bust. According to MPF Research, vacancies in professionally managed buildings with five or more apartments fell from a high of 7.9 percent in 2009 to just 4.9 percent in 2012—the lowest annual vacancy rate since 2007. MULTIFAMILY PROPERTY AND LOAN PERFORMANCE With vacancy rates falling and rents rising, rental property own ers had another good year. The National Council of Real Estate Investment Fiduciaries estimates that net operating income (NOI) for institutionally owned apartments rose 6.1 percent over the course of 2012. While a slowdown from the 10.4 per cent increase in 2011, NOI growth was still above the historical average and marked a significant improvement from the losses in 2009–10. The delinquency rate for apartment loans held in CMBS improved as well, edging down from 14.4 percent at the end of 2011 to 13.1 percent at the end of 2012 but still well above the historical average. The relatively high rate of delinquencies and slow recovery of multifamily CMBS loans reflect the fact that the CMBS delinquency rate includes loans on properties that are in foreclosure or are real estate owned, but other delinquency rates generally do not. EXPANDED MULTIFAMILY LENDING ACTIVITY With production and sales activity ramping up, multifamily loan originations rose sharply in 2011–12 even as overall mul tifamily mortgage debt outstanding increased only modestly. According to the Mortgage Bankers Association, the annual dol lar volume of multifamily loans originated was up 36 percent in 2012, with fourth-quarter originations fully 49 percent above the year-earlier volume. Meanwhile, total net amount of mul tifamily mortgage debt outstanding grew by just 2.0 percent in real terms, from $826.8 billion in 2011 to $845.7 billion in 2012. After adjusting for inflation, total debt outstanding in 2012 was only 0.2 percent below the 2009 peak of $847 billion and more than $265 billion (46 percent) above the 2002 level.

[Assistant] ● Return on Investment ● Growth of Net Operating Income Notes: Data are for apartments. Net operating income is deﬁned as gross rental income plus any other income less operating expenses. Annual rates are calculated across four quarters. Source: JCHS tabulations of National Council of Real Estate Investment Fiduciaries (NCREIF) data.


[User] Small investors and local property owners continue to own the vast majority of the nearly 14 million single-family rent als nationwide. But since 2011, large investment pools have acquired single-family homes on an unprecedented scale with the intention of managing the properties as rentals. According to CoreLogic, institutional investors accounted for fully 30 percent of 2012 home sales in Miami and 23 per cent in Phoenix. The largest of these investor groups have amassed portfolios of 10,000–20,000 single-family homes, many of them distressed properties concentrated in a few select markets.

[Assistant] A key issue for markets where investors have been most active relates to the longer-run impact on housing prices. For now, investors are earning returns from rents, but eventually they are likely to liquidate their real estate holdings when prices have recovered sufficiently. Over the past 12 months, prices of bottom-tier homes have already climbed sharply in several key metros including Atlanta (up 37 percent), Las Vegas (up 34 Note: Dollars are adjusted for inﬂation using the CPI-U for All Items. Sources: JCHS tabulations of Mortgage Bankers Association, Quarterly Reports; US Federal Reserve Board, Flow of Funds Accounts of the United States; US Federal Deposit Insurance Corporation, Quarterly Banking Proﬁle.


[User] THE OUTLOOK Rental markets have rebounded so sharply that some observ ers have expressed concern about overheating. But so far, the indicators point to a healthy recovery. Construction activity has revived from its low during the recession but is still in line with the moderate levels of the 1990s. Meanwhile, vacancy rates con tinue to edge down and rental rates are moving up, providing no suggestion that supply has begun to outstrip demand.

[Assistant] As with owner-occupied housing, a critical issue for the rental market going forward is whether other sources of multifam ily financing will step up as the GSEs and FHA curtail lending. While the participation of private capital has increased in recent years, it is unclear how well these sources will meet the growing demand for multifamily financing, particularly for the afford able and underserved market segments.


[User] 6 Housing Challenges 27 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY SPREADING COST BURDENS The housing recovery has pushed up rents and house prices even as high unemployment has pushed down real incomes for a broad spectrum of households. According to the most recent American Community Survey, 42.3 million households (37 per cent) paid more than 30 percent of pre-tax income for housing in 2011, while 20.6 million households paid more than half. The number of severely burdened renter households increased by in 2011, to 27.6 percent. The share of owners with similar housing cost burdens was unchanged at 12.6 percent. In fact, the number of severely burdened owners actually fell by in 2011 because some formerly burdened households were able to lower their mortgage payments by refinancing. But other owners lost their homes to foreclosure, which may have alleviated their severe cost burdens but likely resulted in a sub stantial loss of wealth. Widening income inequality has been an important factor in the spread of housing cost burdens, with growing numbers of very low-income households unable to afford housing. Over the decade from 2001 to 2011, households earning less than $15,000 accounted for fully 40 percent of overall household growth and households earning $15,000–29,999 contributed another 34 per cent. The swelling ranks of low-income households helped push up the number of cost-burdened households, and a rise in the incidence of housing burdens compounded that trend. The share of households earning less than $15,000 with severe cost burdens rose from 62.6 percent in 2001 to 68.7 percent in 2011, while the So far, the economic recovery has done nothing to curb the persistent rise in both the number and share of cost-burdened households. Employment growth has been slow to revive, leaving many households with lower incomes amid rising housing costs. Whole communities are still reeling from high foreclosure rates, widespread vacancies, depressed home values, and disinvestment. And at the same time that low-income households far outnumber the rentals they can afford, housing assistance programs are at risk of cutbacks. THE STATE OF THE NATION’S HOUSING share earning $15,000–29,999 with severe cost burdens rose from 23.1 percent to 30.9 percent. Although rising unemployment and underemployment exacer bated the problem, even working full time does not guarantee that households can afford to pay for housing. From 2007 to 2011, the share of low-income households with full-time jobs that were severely cost burdened increased from 38.6 percent to 42.4 percent. During this period, the total number of working poor households rose by 1.1 million, while the number of such households with severe housing cost burdens was up by . Severe housing cost burdens are geographically widespread, with 17.9 percent of all US households devoting more than half their incomes to housing. The shares in 40 states are at least 14 percent. Many states with the largest shares of cost-burdened households also have relatively high home values and rents. California, New York, and New Jersey top the list, with more than 22 percent of households having severe housing cost bur dens. But several low-cost states also have large shares of such households. These include Florida and Nevada, where median home values and rents are low but median incomes are low as well. At the other extreme are four states—North Dakota, South Dakota, Iowa, and Wyoming—where less than 12 percent of households are severely burdened. These states are largely rural and have low housing costs relative to incomes. According to the 2011 Consumer Expenditure Survey, families with children in the bottom expenditure quartile (a proxy for low income) spend a total of about $1,400 per month. After paying more than half of this amount for housing, the average severely burdened low- income family with children has about $565 left for savings and all other monthly expenses—half the amount unburdened households have. Compared with low-income households living in homes they can afford, those with severe cost burdens spend two-thirds as much on food, half as much on clothes, and half as much on pensions and retirement. Severe housing cost burdens also lead to noteworthy differences in healthcare outlays. Severely burdened families with children spend only about one-fifth as much on healthcare as those without burdens. Seniors with severe cost burdens also spend $150 less per month, or $1,800 less per year, on healthcare than their unburdened counterparts. On average, low-income families without housing cost bur dens spend two-and-a-half times more on transportation each month than those with severe burdens. In rural areas, house holds in the bottom expenditure quartile but without housing cost burdens spend more than three times as much on trans portation as their housing cost-burdened counterparts. INVESTING IN ENERGY-EFFICIENT IMPROVEMENTS Improving the energy efficiency of homes would clearly slow the spread of housing cost burdens. For low-income households in particular, utilities account for a substantial share of overall housing costs. In 2011, utility costs were nearly a fifth (18 per cent) of housing costs for the median renter earning less than $15,000 annually. Even for those earning $15,000–29,999, utility costs typically made up 16 percent of housing costs. Energy- efficient improvements would also go a long way toward reduc ing the residential sector’s large carbon footprint. According to the Energy Information Administration’s 2012 estimates, resi dential demand accounted for 21 percent of energy consump tion in the United States and 20 percent of carbon emissions. HOUSING ASSISTANCE AT RISK Federal rental assistance plays a critical role in relieving the housing cost burdens of some of the nation’s most vulnerable families and individuals. Among residents of assisted housing, 35 percent have a disability, 31 percent are age 62 or older, and 38 percent are single-parent families. The incomes of these assisted households are extremely low, with 44 percent having annual incomes of less than $10,000 and another 37 percent having incomes between $10,000 and $20,000. The benefits of housing assistance for those who receive it are substan tial. Federal subsidies reach only about a quarter of eligible house holds, and higher subsidy costs have strained the government’s ability to maintain even that limited level of assistance. Between 2008 and 2012, the Housing Choice Voucher Program, which provides subsidies to tenants to obtain housing in the private market, received a 15 percent nominal increase. At the same time, however, rising market rents and utility costs—along with losses in household income resulting from recession-induced unemployment—raised the per-household cost of vouchers. As a result, the increase in program funding did nothing to expand the number of families assisted. For similar reasons, the num ber of units with project-based rental assistance also remained largely unchanged despite an increase in funding.

[Assistant] The supply of subsidized rental housing will continue to erode. The supply of public housing is also shrinking at a rate of 10,000 units per year, largely for lack of funds to make necessary repairs. Within the voucher program, the Center on Budget and Policy Priorities estimates that if rental assistance costs continue to rise at the current pace over the next decade, funding would have to increase by $4.5 billion to prevent more than low-income families from losing their assistance.


[User] 1 Executive Summary 1 Executive Summary 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY SINGLE-FAMILY SLOWDOWN After kicking off 2013 on a strong note, the single-family market slowed noticeably in the second half of the year—even before the unusually harsh winter took its toll. By the first quarter of 2014, housing starts and new home sales were down by 3 per cent from a year earlier while existing home sales were off by 7 percent. Higher mortgage interest rates were much to blame. From early 2011 to early 2013, the rate on 30-year fixed mortgages had been on a steady downtrend, sliding from about 5.0 per cent to a low of 3.4 percent. This decline provided substantial stimulus to the housing market and helped to bolster the recovery that took hold in 2012. Another factor in the single-family slowdown is the pullback in investor purchases of distressed properties, particularly in mar kets where their acquisitions are concentrated. Spurred by low home values, high rents, and limited competition from owner occupants, large institutional investors bought more than homes as rentals in 2012 and 2013. Together with the purchases of smaller investors that had long been active in the market, these large-scale investors helped to add several million single-family rental units between 2007 and 2011. But now that the inventory of distressed homes has shrunk and single-family With promising increases in home construction, sales, and prices, the housing market gained steam in early 2013. But when interest rates notched up at mid-year, momentum slowed. This moderation is likely to persist until job growth manages to lift household incomes. Even amid a broader recovery, though, many hard-hit communities still struggle and millions of households continue to pay excessive shares of income for housing. More fundamentally, though, the slow pace of the single-family housing recovery reflects steady but unspectacular job growth. Total employment has just returned to its previous peak, but remains well short of the gains necessary to accommodate the several million additional working-age adults that have joined the labor force since the start of the recession. As long as employment gains remain steady but modest, the pace of the housing recovery is likely to follow suit. The fact that these delayed moves have held back household growth in recent years has fed hopes that the housing market recovery would accelerate once employment growth revived and younger adults were able to get jobs. This rebound has yet to occur, even though many living at home are now employed. Regardless of the economic setbacks they may have experienced, today’s 20–29 year olds are still likely to follow the same pattern. Assuming current headship rates hold, the number of households in their 30s should therefore increase by 2.7 million over the next decade and provide a strong lift to the rental and starter home markets. STABILIZING HOMEOWNERSHIP RATES The US homeownership rate declined for the ninth consecutive year in 2013. According to the Housing Vacancy Survey (HVS), the national rate stood at 65.1 percent—its lowest reading since 1995. But even though the number of owners was still falling last year, the decline was the smallest posted since 2008. Falling incomes are also taking their toll. For the past two decades, homeownership rates for both of these age groups have closely tracked changes in incomes, rising through the 1990s before turning down in the middle of the 2000s. However, the economic recovery may have advanced enough to allow growth to resume, with 2012 incomes edging up 1.2 percent among workers aged 35–44 and dipping just 0.3 percent among those aged 25–34.

[Assistant] In addition, many would-be homebuyers may be burdened by student loan debt. Between 2001 and 2010, the share of house holds aged 25–34 with student loan debt soared from 26 percent to 39 percent, with the median amount rising from $10,000 to $15,000 in real terms. Within this group, the share with at least $50,000 in student debt more than tripled from 5 percent to 16 percent. For these borrowers, the need to pay off these outsized loans will likely delay any move to homeownership.


[User] On the strength of this demand, vacancy rates continued to fall and rents continued to rise nationally as well as in many metropolitan areas across the country. According to MPF Research, rents for professionally managed apartments climbed 3 percent in 2013. Meanwhile, increases in the 20 most rapidly appreciating rental markets averaged 6 percent, up from 5 per cent in 2012. While many of these hot markets are in northern California, the list also includes Corpus Christi, Denver, and Fort Myers. MPF Research data indicate that the number of occupied apartments in investment-grade properties increased by more than annually from 2010 through early 2012. Over the same period, additions to the supply were well below that level, helping to bring down vacancy rates and lift rents. As of the last quarter of 2013, however, slower growth in occupied apartments and fast er growth in new apartments coming onto the market brought these measures into alignment. Meanwhile, the multifamily property market is flourishing. According to Moody’s/RCA Commercial Property Price Index, property values increased by double digits for the fourth con secutive year in 2013, pushing values above their previous peak. Delinquency rates have also declined substantially in all market segments, although the rate among loans held in commercial mortgage backed securities remains relatively high. Amid these improving conditions, banks and thrifts raised their multifamily Notes: Incomes are adjusted for inﬂation using the CPI-U for All Items. Incomes for 2013 are not yet available. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys and Current Population Surveys. On the homeowner side, the share with cost burdens crested in 2008 at 30.4 percent, up 6 percentage points from 2001. The share then held steady for several years before edging down in 2011. Much of this improvement reflects the fact that many owners were able to refinance their mortgages at much lower interest rates. More important, though, the number of owners with mortgages fell by 2.7 million in 2007–12 as the foreclosure crisis progressed, matching the drop in the number of mort gaged owners with cost burdens. Moreover, even after two years of declines, the share of cost-burdened homeowners stands well above levels at the start of the last decade. Lower-income households are especially likely to be cost bur dened. Among those earning less than $15,000 a year (roughly equivalent to working year-round at the federal minimum wage), 82 percent paid more than 30 percent of income for housing in 2012 while 69 percent paid more than half. Although conditions among households making $15,000–29,999 are slight ly better, the share with at least moderate cost burdens was 64 percent and that with severe cost burdens was 30 percent. Living in inadequate housing presents additional hazards to health and safety. In 2011, the American Housing Survey found that extremely low-income households (earning less than 30 percent of area medians) were more than three times more likely to live in structurally deficient units as households earning at least 80 percent of area medians. Moreover, lowest- income households opting for housing they could afford were 43 percent more likely to live in inadequate units, underscoring the tradeoff between affordability and quality. LOOKING AHEAD Despite their rebound in the last two years, home sales and starts are still nowhere near normal levels. Indeed, single- family construction is running below rates hit during the depths of the 1980–82 recession. But if income and employment trends continue, household growth—especially among younger adults—should also pick up and thus help to support demand for both rental and owner-occupied housing. The future course of homeownership will depend largely on the cost and availability of mortgage financing. On the private side, looser mortgage underwriting standards may help to bolster the housing market recovery. After sharply raising their guarantee fees and insurance premiums in recent years, all three entities are taking steps to buoy the homebuying market. For example, FHA recently introduced a counseling-based program that provides borrowers an option to lower their premiums. Federal agencies are also working to expand access to mortgage credit by con vincing lenders that they can extend well-documented loans to lower-credit-score borrowers without fear of reprisal in the case of default.

[Assistant] Meanwhile, prospects for improving rental housing affordabil ity are bleak. While a pickup in income growth and an easing in rents would help to reduce the alarmingly high number of cost-burdened renters, the cost of market-rate housing will still be out of reach for many. For these households to have the stability they need to seek opportunity, rental assistance is the only option. Without expanded federal funding to aid the neediest households, millions of US families and individuals will continue to live in housing that they cannot afford or that is inadequate, or both.


[User] THE STATE OF THE NATION’S HOUSING 2014 6 Notes: Moderately (severely) cost burdened is deﬁned as paying 30–50% (more than 50%) of income for housing. Households with zero or negative income are assumed to be severely burdened, while renters paying no cash rent are assumed to be without burdens. Construction starts jumped 18.5 percent from 2012, to units. Even so, this was the sixth consecutive year that starts failed to hit the 1.0 million mark—unprecedented before 2008 in records dating back to 1959. Indeed, annual starts are running far below their historical average of 1.46 million. Owner spending on improvements to existing homes also rose over the past year. Benefiting from strengthening house sales, After another year of healthy growth in 2013, the housing market paused in the first quarter of 2014. The renewed weakness in residential construction, sales, and prices raised fears that the recovery is still fragile. Nevertheless, there has been convincing progress toward normalcy, with the number of delinquencies, foreclosures, and underwater mortgages trending down and non-distressed home sales trending up. As of March 2014, expenditures for homeowner improvements thus contributed 39 percent of total residential construction spending—well above its historical average of 30 percent. Homeowner spending is likely to continue to drive a dispropor tionate share of residential investment again in 2014. According to the Leading Indicator of Remodeling Activity, homeowner outlays should increase during the first three quarters before slowing in the fourth quarter partly in response to weakening home sales early in the year. With steady growth in improvement spending and solid increases in new residential construction, the housing sector helped to bolster the overall economy in 2013. The Bureau of Economic Analysis reports that increases in residential fixed investment (RFI, which includes homebuilding, improvements, and related activities) contributed 14 percent of total growth in gross domes tic product (GDP) last year, raising hopes that housing investment will finally propel a stronger expansion. The sizable contribution of RFI is noteworthy given the modest scale of housing construc tion. Indeed, RFI made up just 3.1 percent of GDP in 2013, well below its historical average share of 4.7 percent. GEOGRAPHIC CONSTRUCTION TRENDS Last year’s rebound in homebuilding was widespread. Single- family starts were up sharply across the country, with growth ranging from 11 percent in the Midwest and 15 percent in the South, to 18 percent in the West and 19 percent in the Northeast. More than half (53 percent) of single-family starts were located in the South, with another fifth concentrated in the West. COOLING HOME SALES Home sales continued to climb in 2013. NAR reports that sales of existing homes increased 9.2 percent, to 5.1 million—mark ing the second year that growth exceeded 9.0 percent and the first time since 2007 that annual sales topped 5.0 million. While slowing somewhat from 20 percent in 2012, annual growth in new home sales was still strong at 17 percent, bringing the total to units. Starting in the fourth quarter, however, existing home sales were just 1 percent above year-earlier levels. The slowdown continued in the first quarter of 2014, when year-over-year sales were off 7 percent. New home sales also had a slow start to 2014, down 3 percent from the first quarter of 2013. This cooldown is significant because the pace of sales already lagged well below normal. This is particularly true for new homes, with 2013 sales just 17,000 units above the lowest annual level recorded between 1963 and the housing bust. Indeed, new home sales are fully 67 percent below the recent peak, while existing home sales are down 28 percent. Sources: Bureau of Economic Analysis, National Income and Product Accounts; US Census Bureau, New Residential Construction and New Residential Sales; and NAR, Existing Home Sales via Moody’s Analytics. 9 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY The composition of home sales does, however, point to improving conditions. Moreover, distressed sales numbered less than 1.0 million, reducing their share of all existing home sales from 22 per cent to 18 percent. Still, cash sales were unusually high for the fifth consecutive year. Metrostudy data indicate that cash sales accounted for 37 percent of home sales last year, nearly matching the 39 percent peak in 2011. By comparison, the all-cash share was just over one in five before the housing market downturn. CONSTRAINED INVENTORIES Homes for sale continued to be in scant supply in 2013. With the pickup in sales, the supply of homes on the market shrank from 5.9 months in 2012 to 4.9 months in 2013. Pre-foreclosure sales are short sales. Foreclosure sales are bank-owned/REO sales. All-cash and ﬁnanced sales exclude transactions where the presence of a mortgage is unknown. Source: JCHS tabulations of Metrostudy and CoreLogic data. Moreover, since the housing crisis, millions of formerly owner- occupied units have been converted to rentals. At last measure, approximately 1.9 million homes switched on net from the owner to the rental stock between 2009 and 2011. This was on top of a 1.1 million unit net shift between 2007 and 2009, which took an estimated 3.0 million units out of the owner-occupied housing stock. Yet another reason for the shortage of inventory is that millions of homes have been taken off the market and are sitting empty. According to the Housing Vacancy Survey, the number of vacant homes held off market spiked to over 7 million units during the housing downturn and is only now beginning to level off. If the vacant/held-off-market share of the housing stock (currently 5.6 percent) were the same as in 2001 (4.5 percent), an additional 1.4 million homes would now be available for sale or rent. METRO HOME PRICES ON THE UPSWING With the supply of homes for sale so tight, home prices rose sharply last year. The CoreLogic index climbed 11.0 percent from December 2012 to December 2013, while the NAR median exist ing home sales price rose 11.5 percent, to . Meanwhile, the Zillow Home Value Index (ZHVI) registered a 6.7 percent gain in 2013—a more modest rise but still the largest year-on-year increase in the index since 2005. Nevertheless, the CoreLogic index indicates that the national home price in March 2014 was still 16 percent below the previous peak, while the ZHVI reports that the March 2014 price was 13 percent below peak. The recovery in home prices continued to spread across the country, with the number of the nation’s 100 largest metros posting increases up from 73 in 2012 to 97 in 2013. Some of the price gains were significant—better than 10 percent increases in 27 metros, and better than 20 percent in 7. Many areas with the largest price gains had also recorded the steepest declines during the housing bust, such as Las Vegas and Phoenix as well as several California metros. For example, home prices in Las Vegas at the end of 2013 were a little over half their previous peaks. The uptick in prices dramatically reduced the number of homes with negative equity (worth less than the outstanding mortgages). For example, Atlanta and Phoenix had two of the highest negative equity shares of any housing markets at the end of 2012. After strong home price gains in 2013, however, the share dropped from 38.1 percent to 19.9 percent in Atlanta and from 36.6 percent to 22.1 percent in Phoenix. Such improve ments added up to significant progress for the US as a whole. According to CoreLogic data, the total number of negative equity homes fell from 10.5 million in the fourth quarter of 2012 to 6.5 million a year later. With this sharp 38 percent decline, the underwater share of all mortgaged homes shrank from 21.6 percent to 13.3 percent.

[Assistant] Largest metros are ranked by for-sale inventory in 2010. Source: JCHS tabulations of Zillow Real Estate Research data. Like home construction and sales, home price appreciation appears to be slowing. Zillow’s ZHVI hit 6.9 percent year-over- year in August 2013, then decelerated slightly to 5.9 percent in March 2014. Zillow also notes that the number of metros where sales prices were higher than asking prices peaked in mid-2013, indicating that competition had cooled. If inventories continue to expand and mortgage rates trend upward, price increases should continue to moderate over the coming year.


[User] The government still had an outsized footprint in the mort gage market in 2013, purchasing or guaranteeing 80.3 percent of all mortgages originated. The FHA/VA share of first liens, at 19.7 percent, was well above the average 6.1 percent share in 2002–03, let alone the 3.2 percent share at the market peak in 2005–06. According to the Urban Institute’s Housing Finance Policy Center, the GSEs purchased or guar anteed 61 percent of originations in 2012 and 2013, up from 49 percent in 2002 and 2003. THE OUTLOOK The US housing market continues its gradual return to nor mal, with far fewer delinquencies, foreclosures, and under water mortgages than a year ago. The shares of all-cash and investor sales are also declining while traditional mortgaged, market-rate home sales to owner-occupants have picked up steam. But the weakness in home construction, sales, and prices in early 2014 suggests that the housing market recov ery has more ground to gain. Over the short term, housing markets will benefit most from a continued economic recov ery that increases employment and raises incomes, particu larly among younger adults hardest hit by the recession. Over the longer run, future decisions about the government’s role in backstopping mortgage markets will have significant impli cations for the cost and availability of credit. THE STATE OF THE NATION’S HOUSING SLUGGISH HOUSEHOLD GROWTH Weak labor markets, declining incomes, and high rents con tinue to dampen household growth. Much of this slowdown reflects the drop in household formation rates among younger adults in the wake of the hous ing bust and Great Recession. Even as the economy continued to recover in 2013, the share of adults in their 20s heading their own households remained 2.6 percentage points below rates 10 years earlier. This implies that there are 1.1 million fewer heads of households in this key age group.

[Assistant] And while headship rates across income groups have been relatively constant over the past 10 years, growth in each group has not. This shift toward low incomes (and therefore low headship rates) accounts for more than half of the drop in household forma tions among 20–29 year olds over that period. If the economy strengthens enough to boost the incomes of this age group, their overall household formation rate will likely increase.


[User] Household growth has yet to rebound fully as the weak economic recovery continues to prevent many young adults from living independently. As the economy strengthens, though, millions of millennials will enter the housing market and drive up demand for rental and owner-occupied homes. Most of these new households will be minorities. Meanwhile, with the aging of the baby boomers, the number of older households is set to soar. Given that headship rates rise sharply with age for adults in their 20s and early 30s, the number of millennials that form independent households should increase significantly, how ever belatedly, in the coming years. But stronger income and employment growth is necessary to drive much of this change. Moreover, millennials are on a lower trajectory of housing inde pendence than earlier generations, and given the current pace of economic growth, it is difficult to predict how quickly these younger adults will finally be able to live on their own. IMMIGRATION TRENDS Although their inflows have slowed and their household forma tion rates have declined, immigrants still account for a sub stantial share of household growth in the United States. Indeed, immigration has been a major source of population growth in recent decades, contributing about 26 percent of total increases in the 1990s and 35 percent in the 2000s. This influx of foreign- born adults served to expand the ranks of the gen-X/baby-bust generation (born 1965–84), thereby limiting the otherwise sharp fall-off in housing demand that would have occurred in the wake of the baby-boom generation. During the Great Recession, however, growth in the foreign-born population weakened as net immigration declined. Household formation rates among the foreign born also fell, brought down by the same difficult economic and housing market conditions that reduced headship rates among the native born. According to the major Census Bureau surveys, the decline was consider able. For example, the Current Population Survey indicates that the number of foreign-born households actually fell in 2009 and 2010. Since then, however, the foreign-born share of US house hold growth has rebounded to nearly 40 percent, helping to buoy housing demand in a period of low overall growth.

[Assistant] LOWER RESIDENTIAL MOBILITY Along with household formation rates and immigration, domes tic mobility rates play an important role in housing markets because residential moves spur investments in improvements and furnishings, generate income for real estate agents and Note: American Community Survey data are only available through 2012. Source: JCHS tabulations of US Census Bureau data.


[User] In addition to these longer-term trends, the housing market crisis also sparked a noticeable drop in mobility rates among homeowners. Plunging house prices, rising numbers of under water mortgages, weak labor markets, and limited access to credit prevented many owners from selling or trading up. As a result, more people live in their homes for longer periods of time. According to the American Community Survey, the share of owners who had lived in their current homes less than five years dropped from nearly a third (30 percent) in 2007 to just one in five (21 percent) in 2012, while the share living in their homes for 10 years or more increased from 49 percent to 57 per cent. Remarkably, this shift occurred even as millions of owners were forced to move when they lost their homes to foreclosure. The slowdown in residential mobility has meant that popula tion gains and losses across metropolitan areas have dimin ished. In the midst of the housing boom in 2005, domestic migration accounted for 30 percent of population growth in the 20 fastest-growing metro areas. In 2013, that share was just 11 percent, with natural increase and immigration accounting for fully 89 percent of growth. 15 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Meanwhile, the unemployment rate for this age group jumped from 4.7 percent in 2006 and 2007 to 10.1 percent in 2010, holding at a still-high 7.4 percent in 2013. Factoring in a slight decline in labor force participation, the share of the 25–34 year- old population with jobs last year was at early-1980s levels. RISING CONSUMER DEBT Households continued to reduce their housing debt in 2013, cutting real mortgage debt 2 percent over the year. But consumer debt was also on the rise, up 14 percent from the end of 2010 to the end of 2013 to account for more than a quarter (26 percent) of aggregate household debt. This is the highest share since early 2004, raising concerns that the combination of falling incomes and rising consumer debt may be contributing to the weakness of housing demand. Education loans have fueled the surge in consumer debt, jump ing 50 percent from the end of 2009 through the end of 2013 and more than quadrupling over the past decade to $1.1 trillion. According to the Federal Reserve Bank of New York (FRBNY), student loan balances reported on credit reports increased by $114 billion in 2013 alone. They also accounted for 63 percent of the growth in total debt over the past year and for nearly the entire increase in non-housing consumer debt since 2003. Soaring student loan debt among younger adults may play a role in their lagging household formation and homeownership rates. At last measure in percent of households aged 25–34 had student loans, up from 26 percent in 2001 and more than double the share in 1989. Young renters, who typically have lower incomes, allocate a larger share of their monthly income to student loan payments, according to the Survey of Consumer Finances. The median renter under age 30 in 2010 devoted 6 percent of monthly income to student loan payments, while those aged 30–39 paid a little less than 4 percent. This Note: Dollar values are adjusted for inﬂation using the CPI-U for All Items. DEMOGRAPHIC CHANGES AND HOUSING DEMAND According to the Joint Center’s 2013 projections, demographic forces alone will drive household growth of 11.6–13.2 million in 2015–25. Underlying these projections are two trends that, in combination, will shift the age composition of US households and therefore the determinants of housing demand. Most imme diately, the aging of the baby boomers will boost the number of older households.

[Assistant] From 2015 to 2025, the number of households aged 70 and older will increase by approximately 8.3 million and account for more than two-thirds of household growth. The number of householders aged 60–69 is also projected to rise by 3.5 million, adding to the overall aging of the population. Another distinction of the millennials is that members are much more diverse than previous generations. For example, 45 percent are minorities, compared with 41 percent of gen- Xers and 28 percent of baby boomers. On the strength of their numbers alone, millennials will increase the racial and ethnic diversity of US households, while large losses of older, mostly white households will magnify their impact. By 2025, dissolu tions of baby-boomer households aged 50–69 in 2015 will reach 3.0 million while those of the previous generation will reach 10.0 million.


[User] THE CHANGING FACE OF FIRST-TIME HOMEOWNERS Despite recent setbacks, minority households account for an ever-larger share of homeowners, particularly among younger age groups. Between 1993 and 2013, the white share of home owners fell from 86 percent to just 77 percent. At the same time, the Hispanic share climbed from 4 percent to 9 percent, while the Asian/other share increased from 2 percent to 6 percent. DETERIORATING AFFORDABILITY While still relatively affordable by historical standards, the cost of homeownership is on the rise. The median price for existing homes jumped 10 percent from the end of 2012 to the end of 2013, while interest rates notched up from about 3.5 percent Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. By this standard, 36 percent of renters in the top 85 metros had sufficient income in 2013 to qualify for a home purchase loan for the median-priced unit in their areas, assuming a 5 percent downpayment, average tax and insurance rates in their markets, Notes: White and black households are non-Hispanic. Hispanic households may be of any race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Many factors have played a role in the sluggish recovery of the home purchase loan market in recent years, including falling household incomes and uncertainty about the direc tion of the economy and home prices. But the limited avail ability of mortgage credit for borrowers with less than stellar credit has also contributed. According to information from CoreLogic, home purchase lending to borrowers with credit scores below 620 all but ended after 2009. Since then, access to credit among borrowers with scores in the 620–659 range has become increasingly constrained, with their share of loans falling by 6 percentage points. At the same time, the share of home purchase loans to borrowers with scores above 740 rose by 8 percentage points. Meanwhile, the government sponsored enterprises (GSEs) have also concentrated both their purchase and refinancing activity on applicants with higher credit scores. Moreover, just 2 Notes: Data include only ﬁrst-lien loans to owner-occupants for one- to four-unit properties. White borrowers are non-Hispanic. Hispanic borrowers include only white borrowers of Hispanic origin. Asian/other includes American Indians, Alaska natives, and native Hawaiians or other Paciﬁc Islanders. Low- (moderate-/middle-/high-) income borrowers have household incomes below 50% (50–79%/80–119%/120% or more) of area medians. Source: Neil Bhutta and Glenn B. Canner, Mortgage Market Conditions and Borrower Outcomes: Evidence from the 2012 HMDA Data and Matched HMDA-Credit Record Data, Federal Reserve Bulletin, November 2013. Yet another drag on the mortgage market recovery is the high cost of credit. For borrowers who are able to access credit, loan costs have increased steadily. To start, interest rates climbed from 3.35 percent at the end of 2012 to 4.46 percent at the end of 2013. This increase was tempered somewhat by a slight retreat in early 2014. In addition, the GSEs and FHA raised the fees required to insure their loans after the mortgage market meltdown, and many of these charges remain in place or have risen. In 2008, the GSEs also introduced loan level price adjustments (LLPAs) or additional upfront fees paid by lenders based on loan-to-value (LTV) ratios, credit scores, and other risk factors. LLPAs total up to 3.25 percent of the loan value for riskier borrowers and are paid for through higher interest rates on their loans. Meanwhile, average credit scores for FHA loans declined from nearly 700 in 2012 to about 690. FHA also reports a downward shift in the distribution of loans to the 620–719 range. Even so, a recent assessment by the Urban Institute found that much of this change simply reflects the migration of borrowers with moderate credit scores from FHA into the GSE market, which has pushed down average scores in both market segments. Thus, while the credit box may have widened, the easing of constraints is much more modest than the drop in average scores suggests. THE STATE OF THE NATION’S HOUSING CONTINUED STRONG DEMAND According to the Housing Vacancy Survey, the number of renter households was up by more than half a million in 2013. At the same time, the Current Population Survey reports that renter household growth was twice that pace. Regardless of this wide discrepancy, both surveys put renter growth well above the annual average of the last few decades. Moreover, both sources also indicate that increases in renter households slowed as the homeownership rate declines eased at the end of 2013. A variety of household types has shifted to rentals in recent years. Along with the groups that are most apt to rent—young er adults, low-income households, and single persons—many older households, higher-income earners, and families with children also contributed to the growth in renters. This reflects both the movement of the baby-boom generation into this age group and the drop in homeownership among these households. Meanwhile, house holds aged 35–44 and 45–54 each accounted for nearly a fifth of the growth in renters, driven largely by their sharply lower homeownership rates. With the recession expanding the ranks of lower-income households, it is no surprise that this group accounted for much of the increase in renters. Indeed, more than a quarter of renter growth was among households earning under $15,000 annually, and nearly 30 percent among those with incomes of $15,000–29,999. At the same time, though, highest-income households accounted for nearly as large a share (23 percent) as lowest-income households. And while many new renters were single persons, families with children—including both single parents and married couples—were responsible for a slightly larger share of the increase because they experienced the big gest falloff in owning. TIGHTER RENTAL MARKETS With the continued strength of demand, the national rental market tightened further in 2013. According to Census Bureau estimates, the rental vacancy rate edged down to 8.3 percent Although slowing, renter household growth continued to soar in 2013. The strength of demand has kept rental markets tight across the country, pushing up rents and spurring new construction. But supply and demand now appear to be coming into balance. With slower renter growth likely ahead and many new apartments in the pipeline, rent increases should begin to ease. and stood at its lowest point since 2000. Even so, last year’s decline was the smallest since vacancies began their retreat in 2010. Meanwhile, MPF Research reports that by the fourth quar ter of 2013, the vacancy rate for professionally managed apart ments was 5.0 percent, virtually unchanged since late 2011. Rent increases have also remained fairly consistent. The consumer price index (CPI) for contract rents indicates that nominal rents were up 2.8 percent in 2013, little changed from 2012. Among professionally managed properties with five or more units, rent increases slowed from 3.7 percent in 2012 to 3.0 percent last year. But by either measure, rents still rose at a healthy clip, outpacing the overall inflation rate of 1.5 percent. The tightening in rental markets was widespread, with 85 of the 93 metropolitan areas tracked by MPF Research reporting higher rents. In many metros, however, the pace of increases slowed. And in a quarter of metro markets, rent increases did not beat the national rate of inflation.

[Assistant] Gains in new construction may, however, be set to slow. The number of multifamily permits issued was up 59,000 in 2013— about half the increase in 2012. Even so, completions of new units should continue to ramp up because of the lengthy devel opment process for multifamily properties. Indeed, multifamily completions totaled just units in 2013, implying that many new units are still in the pipeline.


[User] Survey data from MPF Research suggest that demand and sup ply for investment-grade apartments are close to balance. From 2010 through 2012, increases in occupied apartments greatly outpaced the number of rental units coming on line, helping to drive down vacancy rates and push up rents. In 2013, however, Source: JCHS tabulations of US Census Bureau, Current Population Surveys. Although individuals have traditionally owned the vast major ity of single-family rentals, institutional investors were enticed into the market by a unique set of conditions following the recession: a high volume of distressed homes for sale, weak demand from owner-occupants, and high rent-to-price ratios. While precise numbers are hard to come by, estimates suggest these investors have amassed more than single-family units from 2012 through early 2014, concentrating most of their purchases in selected markets. Now that distressed home sales have slowed and home prices have risen sharply, how ever, most of the largest investors have indicated that they will limit future acquisitions. At the same time, owners of existing low-rent properties have little revenue to cover operating and maintenance costs, leaving these units at risk of removal. Of the 34.8 million rentals that existed in 2001, some 1.9 million (5.6 percent) were demolished by 2011. The loss rate for units renting for less than $400 was more than twice as high at 12.8 percent. Although making up only a small share of the overall supply, these units thus accounted for more than a third of total removals. Losses of units with rents between $400 and $600 were also relatively high at 6.7 percent. Removal rates decline as rents increase, falling to just 3.0 percent for units renting for $800 or more. PERFORMANCE OF APARTMENT PROPERTIES With vacancy rates at their lowest point in more than a decade and rent increases consistently outpacing inflation, apartment properties continue to perform well. The National Council of Real Estate Investment Fiduciaries reports that the net operating income of commercial-grade apartments was up 3.1 percent in 2013. While well below the 6–11 percent growth in 2011–12, last year’s increase was still healthy and nearly matched the 3.3 percent annual average of the last three decades. Meanwhile, apartment property values continued to climb at a remarkable pace. According to Moody’s/RCA Commercial Property Price Index, apartment prices shot up 14 percent on average in 2012–13. With rapidly appreciating property values and stable cash flows, commercial-grade properties posted a 10.4 percent annual rate of return last year. This nearly matches the 11.5 percent aver age level in the ten years preceding the housing bubble and bust (1995–2004), suggesting that growth is settling down to more sustainable rates. Of particular note is the changing source of these loans. Based on estimates of total loans outstanding (including both new originations and repayment or writeoffs of existing loans), federal sources accounted for much of the increase in lending early in the multifamily recovery. In 2010, the volume of loans backed by the GSEs and FHA increased by $13 billion, loans held by banks and thrifts were essentially flat, and those held in CMBS fell $9 billion. As the rental recovery gained traction, however, private lenders began to step up their presence in the market.

[Assistant] THE OUTLOOK Predicting the course of homeownership rates, and therefore rentership rates, is difficult because it depends on a host of eco nomic factors as well as consumer attitudes. But given recent signs that the homeownership rate may be stabilizing and that new rental units will continue to come on line, market condi tions should come more into balance.


[User] 6 Housing Challenges 27 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY UNABATED COST BURDENS Ending a long string of increases, the number of cost-burdened households (paying more than 30 percent of income for hous ing) receded slightly in 2012, falling by 1.7 million from the preceding year. But the improvement rolled back only a frac tion of the growth over the previous decade. What is particularly alarming is that 5.8 million of this gain was among severely burdened households (paying more than 50 percent of income for housing). Virtually all of the improvement in conditions came on the home owner side, with their cost-burdened numbers falling from 22.0 million in 2011 to 20.3 million in 2012. But even with this decline, more than a quarter of homeowners (27 percent) still had cost burdens, including more than one in ten with severe burdens. The picture for renters is even less encouraging. In fact, the number of cost-burdened renters rose slightly to 20.6 million in 2012, marking the sixth straight year of increases. And although the cost-burdened share edged down, it still remained close to 50 percent. Moreover, more than one in four renters (27 percent) were severely housing cost burdened. Cost burdens are the norm among lowest-income households. More than four out of five households with incomes below $15,000—about equivalent to full-time work at the federal mini mum wage—paid more than 30 percent of those incomes for housing in 2012, with more than two-thirds paying over 50 per cent. Within this lowest-income group, the cost-burdened shares differ little between owners and renters. In the next-lowest income group (earning $15,000–29,999), three-quarters of renters were cost burdened compared with 52 percent of owners. Even so, the severely cost-burdened shares for both owners and renters in this income group were similar (27 percent vs. 34 percent). The incidence of severe cost burdens remains particularly high among minority households. In percent of black households were severely burdened, along with 24 percent of Hispanic households and 21 percent of Asian households. DRIVERS OF AFFORDABILITY TRENDS While cost burdens have spread among both owners and renters, the causes of these increases differ. For homeowners, most of the changes in cost-burdened shares reflect the ups and downs in housing costs. Homeowner costs peaked in 2007 and then began a steep decline as interest rates hit his toric lows and home prices plunged. By 2012, median housing costs for owners were nearly back to decade-earlier levels. But incomes also fell after 2007, offsetting some of the cost decline. On the renter side, income declines have played a leading role in the rising incidence of cost burdens. From 2001 to 2007, median monthly rental costs rose 4 percent while renter incomes fell by 8 percent. The slide in renter incomes continued through 2011 with another 8 percent decline. Although conditions improved somewhat in 2011–12, the changes were not nearly enough to make up for lost ground. As a result, median renter incomes were 13 percent lower in 2012 than in 2001, falling from $36,000 to only $31,500. Meanwhile, the median rent paid, at $880, was up about 4 percent over this period. IMPACTS OF HIGH-COST HOUSING Low-income families and individuals unable to secure decent, affordable, and suitable housing face difficult choices. Many have to settle for units that cost more than they can afford and then must severely limit what they spend on food and other critical necessities. For those who find housing that is within their budgets, the units may be of poor quality and/or located Notes: Moderately (severely) cost burdened is deﬁned as paying 30–50% (more than 50%) of income for housing. Households with zero or negative income are assumed to be severely burdened, while renters paying no cash rent are assumed to be without burdens. Source: JCHS tabulations of US Census Bureau, American Community Surveys. In 2012, severely cost-burdened households in the bottom expenditure quartile (a proxy for income) spent on average 39 percent less on food and 65 percent less on healthcare compared with otherwise similar households living in afford able housing. The extent of these cutbacks is similar across a broad range of household types, although families with children spent significantly less on healthcare. Households that are severely cost burdened and living in rural areas also make particularly steep cuts in both nutrition and health care expenditures. According to the 2011 American Housing Survey, extremely low-income households (earning less than 30 percent of the area median) were more than three times more likely to live in inadequate housing than households earning 80 percent or more of area median income. Moreover, extremely low-income renters are more likely to live in poorer quality neighborhoods. In 2009, some 25 percent lived in areas where a serious crime had occurred within the preced ing year, and 13 percent lived within a half-block of at least one abandoned or vandalized building. The comparable shares for renters with higher incomes are 21 percent and 5 percent. THE GROWING SUPPLY GAP The rising tide of households unable to secure affordable housing reflects both substantial growth in the number of extremely low-income households and the fact that the private sector struggles to provide housing at a cost that is Notes: Low (very low/extremely low) income is deﬁned as 50–80% (30–50%/less than 30%) of area median. Moderately (severely) cost burdened is deﬁned as paying 30–50% (more than 50%) of household income for housing. Households with zero or negative income are assumed to be severely burdened, while renters paying no cash rent are assumed to be without burdens. Inadequate units lack complete bathrooms, running water, electricity, or have other indicators of major disrepair. For a complete deﬁnition, see HUD Codebook for the American Housing Survey, Public Use File. THE STATE OF THE NATION’S HOUSING within reach of these households. An Urban Institute analy sis found that in 2000, 8.2 million extremely low-income households competed for 2.9 million rental units that were affordable and available. By 2012, the number of extremely low-income households had swelled to 11.5 million while the number of affordable and available housing units had increased to only 3.3 million. SHRINKING SUBSIDIES To qualify for federal rental assistance programs, a household typically cannot earn more than 50 percent of area median income. But this aid is not an entitlement and a large majority of eligible renters do not receive assistance. According to HUD estimates, the number of households eligible for rental subsi dies shot up 21 percent between 2007 and 2011, growing from 15.9 million to 19.3 million. Indeed, the number of very low-income renters that benefited from any kind of housing aid increased by just over this period. Meanwhile, the share of subsidy-eligible unassisted renters with worst case needs (either having severe housing cost bur dens or living in severely inadequate housing, or both) climbed steadily from 50 percent to 58 percent. In part, the growing inadequacy of housing assistance pro grams—particularly the voucher program that has accounted for much of the increase in aid in recent decades—reflects the fallout from rising rents and falling renter incomes. HUD administrative data indicate that the average rent for a vouch er-assisted unit was $1,041 per month in 2012, up 13 percent from 2007. Over this period, federal spending per voucher- assisted unit rose 17 percent, from $600 to $705 per month. As the cost of administering rental assistance continues to grow, the capacity of federal programs to serve eligible households continues to diminish. According to a 2012 HUD report, most owners of LIHTC prop erties choose to keep their units affordable, but this generally requires renewed subsidies. The tax credit units most at risk of loss from the affordable stock are likely those with for-profit owners and located in high-cost housing markets. Another hurdle for preserving the affordability of LIHTC units nearing the end of their compliance period is that they often need new funding for maintenance and rehabilitation. THE OUTLOOK Despite the recent weakness in a variety of indicators, the hous ing recovery is likely to continue at a modest pace, in line with growth in the broader economy. But even as the overall market shows signs of renewed health, significant challenges remain. Chief among them is that tens of millions of Americans devote an excessive amount of their incomes to housing but are still unable to live in good-quality units in stable communities. Nearly a quarter of all renter households earn less than $15,000 a year, which means that housing they could afford would rent for under $400 a month. These households must therefore compete for the extremely limited and dwindling supply of housing with such low rents. And given the cost of land, building materials, financing, and operations, the private sector is simply unable to provide additional low-cost housing without subsidies.

[Assistant] Notes: Neighborhoods are deﬁned by zip codes and include 11,572 areas with at least 500 residents and with data available from 2000 to 2013. Minority (mixed/white) neighborhoods were more than 50% (10–50%/less than 10%) minority in 2012. High- (moderate-/low-) poverty neighborhoods had poverty rates of more than 20% (10–20%/ less than 10%) in 2012. Home price changes are averaged across neighborhoods. Source: JCHS tabulations of Zillow Real Estate Research data and US Census Bureau, 2012 American Community Survey 5-Year data. Source: JCHS tabulations of Zillow Real Estate Research data and US Census Bureau, 2012 American Community Survey 5-Year data.


[User] With the gen-Xers accounting for such a significant share of the first-time and trade-up markets, the drop in their homeowner ship rates may well be a more critical factor in the ongoing weak ness of the owner-occupied segment than the slow transition of the millennial generation (born 1985–2004) into homebuying. This is not to say, however, that the millennials do not face their own financial hurdles to homeownership. Over the span of just 10 years, the share of renters aged 25–34 with cost burdens (pay ing more than 30 percent of their incomes for housing) increased from 40 percent to 46 percent, while the share with severe The US housing recovery lost momentum in 2014 as homeownership rates continued to fall, single-family construction remained near historic lows, and existing home sales cooled. In contrast, the rental market remained a bright spot, fueled by strong growth in renter households. With rents rising and incomes well below pre-recession levels, though, the number of housing cost- burdened renters set another record, far surpassing public efforts to provide affordable housing. And despite the rebound in much of the nation, a number of minority and low- income neighborhoods remain severely distressed. RENTAL MARKET BOOM The flip side of falling demand for owner-occupied housing has been exceptionally strong demand for rental units. According to the Housing Vacancy Survey’s count, renter household growth has averaged annually since 2004. This makes 2004–14 the best 10-year period for renter growth since the late 1980s. While soaring demand is often attributed to the millennials’ preference to rent, households aged 45–64 in fact accounted for about twice the share of renter growth than households under the age of 35. Similarly, households in the top half of the income distribution, although generally more likely to own, contributed 43 percent of the growth in renters. Despite this massive expansion of the stock, rental markets con tinued to tighten in 2014. The national vacancy rate dipped to 7.6 percent, its lowest point in nearly 20 years. MPF Research estimates that vacancy rates for professionally managed apartments were even lower, at 4.6 percent, and fueled even larger rent increases of 3.8 percent.

[Assistant] Based on these strong fundamentals, apartment building prices rose for the fifth consecutive year in 2014, up 15 percent. As measured by Moody’s/RCA Commercial Property Price Index, last year’s prices were 21 percent above their previous peak. Lending for multifamily properties followed suit, with the total Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys.


[User] 3 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY value of multifamily loan originations also rising 15 percent in 2014. Banks and thrifts accounted for more than half of the increase in multifamily mortgage debt outstanding. With no signs of a slowdown in renter household growth, rental markets are likely to remain tight in the near term. If strong job growth continues, rental demand could get another lift as increasing numbers of young adults move out of their parents’ homes and into their own.

[Assistant] Even so, the supply of new apart ments should continue to grow as completions catch up with starts, which would help to moderate future increases in rents.


[User] A little over one million housing units were started last year—a significant threshold by today’s stan dards. But until the recent downturn, this would have been the lowest total in the past half-century. Virtually all of the weakness is due to low levels of single-family construction, with starts increasing only 5 percent for the year. In contrast, multifamily starts remained on a strong upward trajectory, rising 16 percent on top of substantial gains each year since 2010. In fact, more multifamily units were started in 2014 than in any year since 1989. The softness in the owner-occupied market is also evident in the 3 percent drop in existing home sales in 2013–14. The silver lining, however, is a shift in the composition of sales, marked by a slowdown in distress-related sales and a modest uptick in traditional sales. Indeed, Metrostudy data show a 10 percent drop in cash sales and a 15 percent drop in sales of bank-owned properties, along with a 3 percent rise in mortgaged purchases of non-bank-owned homes. And with so many other would-be trade-up buyers constrained by tight credit conditions, it is no surprise that inventories of existing homes on the market are so limited. April 2015 marked the 32nd straight month that existing homes for sale held below a six-month supply, the traditional measure of a balanced mar ket. And with home price appreciation slowing in 2014, growth in the number of owners that decide to sell may also decelerate. At the same time, though, more modest price appreciation will help to keep homeownership affordable, particularly if interest rates rise as the economy nears full employment. Of course, without more inventory, would-be homebuyers have limited opportunities to take advantage of these conditions. In assess ing the state of the housing market recovery, the existing home inventory is a key metric to watch. The weak single-family market reflects a number of short-term conditions, including harsh winter weather and higher interest rates in the early months of 2014, along with rising home prices over the course of the year. But the long-term decline in house hold income is a more critical factor. Despite steady job growth since 2010 and a drop in unemployment to less than 6 percent, the labor market recovery has yet to generate meaningful income gains. At last measure in 2013, median household income was $51,900—still 8 percent below the 2007 level in real terms and equivalent to 1995 levels. Still, there were encouraging signs in early 2015 that wage growth may be picking up, a trend that would clearly help to bolster all segments of the housing market. HOUSEHOLD GROWTH AND FUTURE HOUSING DEMAND Despite conflicting reports from the major government surveys, household growth may be reviving. The timeliest of the sources, Note: Estimates are four-quarter rolling averages of year-over-year growth. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Moreover, two of the major trends contributing to the recent slowdown in household growth—declines in headship rates among young adults and in net immigration—appear to be reversing. Recent surveys suggest that the share of young adults moving into independent households is stabilizing. In combination with the aging of the millennials into their 20s and early 30s, this sets the stage for stronger household growth. Meanwhile, net immigration was close to the one-million mark in 2014 for the first time since 2007. With headship rates firming and immigration resuming, the Joint Center for Housing Studies projects that household growth will return to its longer-run average of just under 1.2 million annually in 2015–25. The sheer size of the millennial generation—already larger than the baby-boom generation at the same stage of life—will drive most of this growth. Moreover, these projections assume no increase in today’s lower headship rates for young adults. If rates of living independently among this age group do rebound, household growth will be even stron ger in the decade ahead.

[Assistant] A large majority will likely remain in their single-family homes for the time being, implying lower turnover in the housing market and higher spending on remodeling of existing homes. In another decade, though, the oldest members of this generation will be in their late 70s, a time of life when living independently often becomes difficult. By 2025, the large and growing population of seniors is likely to drive up demand for alternative housing arrangements that offer a combination of affordability, accessibility, and supportive services.


[User] THE SPREAD OF RENTER COST BURDENS Even before the Great Recession, both the number and share of US households paying more than 30 percent of income for housing were on the rise. But the cost-burdened share of home owners began to recede in 2010, not only because many over leveraged households lost their homes to foreclosure, but also because low interest rates helped to reduce monthly mortgage costs. As a result, the cost-burdened share of homeowners fell 5 percentage points in 2010–13, to about one quarter. The cost-burdened share of renters, in contrast, held near record highs in the face of stagnating incomes and steadily ris ing rents. In 2013, almost half of all renters had housing cost burdens, including more than a quarter with severe burdens (paying more than 50 percent of income for housing). Although these shares remained slightly below their peaks in 2013, the total number of renters with housing cost burdens increased over the year because the total number of renters increased. Much to their detriment, cost-burdened households are forced to cut back on food, healthcare, and other critical expenses. Affordable housing thus means a dramatic improvement in quality of life for households able to obtain it, but federal assis Notes: Cost burdens are deﬁned as housing costs of more than 30% of household income. Households with zero or negative income are assumed to have burdens, while renters paying no cash rent are assumed to be without burdens. The ten highest-cost metros are ranked by median monthly gross rents. Source: Table W-4. tance lags far behind need. Although funding for housing choice vouchers did increase in recent years, the cost of subsidies also rose, limiting growth in the number of federally assisted households. Meanwhile, severe cuts in the HOME program have hampered the ability of state and local governments to add new assisted units. To make matters worse, the affordability periods of more than 2 million assisted housing units are set to expire over the coming decade, and preserving this critically important resource will require a renewal of federal commitments. The Low Income Housing Tax Credit program—the key tool for both developing and preserving affordable rentals—is under increas ing pressure from these competing needs. Similarly, mortgage delinquency rates nationwide have fallen by half since the foreclosure crisis peaked. But the remaining loans that are seriously delinquent (90 or more days past due or in foreclosure) are concentrated in relatively few neighbor hoods. Indeed, the 10 percent of zip codes with the highest number of seriously delinquent loans accounted for about half of all such loans nationally in 2014. While located in states across the country, many of these communities are concen trated in Florida, New York, New Jersey, and Illinois. THE OUTLOOK Despite the slowdown in 2014, the housing market recovery could regain steam in 2015 if continued employment growth helps to lift household incomes. But the lingering effects of the housing crash and Great Recession continue to impede the recovery. Millions of owners still have little or no equity in their homes and/or damaged credit histories, dampening demand in both the first-time buyer and trade-up markets. Although members of the millennial generation are starting to find their footing in the job market and helping to propel rental demand, many of these young adults are saddled with rent burdens and student loan payments that will slow their transition to homeownership. Reflecting the low level of residential construction in general, and of single-family homes in particular, the housing sector contributed only modestly to the economy in 2014. Residential fixed investment (RFI)—which includes homebuilding as well as homeowner spending on improvements—accounted for just 3.2 percent of GDP, significantly less than the 4.5 percent averaged in records dating back to 1969. Despite its relatively small share of the economy, residential fixed investment has at times generated 15–20 percent of annual GDP growth. Last year, however, housing’s contribution decreased steadily as overall economic growth accelerated. For 2014 as a whole, RFI accounted for a negligible 0.05 percentage point of the 2.4 percent increase in GDP (about 2 percent), a sig nificant drop from its 0.33 percentage point shares (about 14–15 percent) in 2012 and 2013. With the weakness in construction, homeowner improvements continued to prop up residential spending. While government estimates vary, the Census Bureau and Bureau of Economic Analysis both report that homeowner outlays for improvements accounted for about a third of residential construction spend ing last year—down from nearly half at the 2011 peak, but still above the quarter averaged in 1993–2006. Although the news was mixed in 2014, housing markets made some advances that set the stage for moderate growth. Single- family construction continued to languish, but multifamily construction remained on a strong upward trajectory. THE STATE OF THE NATION’S HOUSING 2015 8 FALTERING HOME SALES Behind the lackluster performance of single-family construc tion is the persistent weakness in new home sales. Sales of new single-family homes increased just 2 percent last year, a sharp slowdown from the 17 percent pace of 2013. At just units, new home sales were still up more than 40 percent from the cyclical low in 2011, but roughly 30 percent below the annual averages in the 1970s, 1980s, and 1990s. While not nearly as depressed as new home sales, existing home sales also lost momentum in 2014, falling to 4.9 mil lion units. Indeed, the National Association of Realtors (NAR) reports a 2.9 percent drop for the year. Although significantly slower than in 2012 and 2013, the pace of existing home sales in 2014 was still almost 20 percent above the recessionary low in 2008. The good news is that the softness in existing home sales largely reflects a decline in distress-related sales, suggesting that mar kets are stabilizing. At the same time, mortgaged home sales and regular (non-REO) re-sales to owner-occupants—the traditional foundation of the home sales market—were both up for the year. Other sources confirm this trend. CoreLogic, for example, reports that the share of cash sales fell again in February 2015, marking 26 consecutive months of year-over-year declines. At 38 percent of home sales, cash sales were 9 percentage points below the 2011 peak, but still well above the 25 percent annual average before the housing boom and bust. THE DRAG OF LOW INVENTORIES While the average number of homes for sale edged up 3.8 percent in 2014, the increase was apparently driven by the slowdown in sales rather than growth in the number of homes put on the market. Even so, the average supply increased to 5.2 months for the year, up from 4.9 months in 2013 but still under the 6.0 month level indicating market balance. Estimates through April, however, show that the for-sale inventory in early 2015 was back below year-earlier levels. Several trends have combined to shrink the pool of homes available for sale. For one, many owners are unable to put their homes on the market because the price drop during the housing crash left them with little or no equity. According to CoreLogic, 10.8 percent of homeowners with mortgages were still underwa ter on their loans in the fourth quarter of 2014, and another 2.8 percent had less than 5 percent equity. Dollar values are adjusted for inflation by the CPI-U for All Items. Sources: US Census Bureau, New Residential Construction and New Residential Sales data; National Association of REALTORS®, Existing Home Sales; Bureau of Economic Analysis, National Income and Product Accounts. 9 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY In addition, many homes remain stuck in the foreclosure process or held off market. The Mortgage Bankers Association (MBA) estimates that the number of homes in foreclosure nationwide exceeds units. The Housing Vacancy Survey also shows no improvement in the share of vacant homes held off market in total or held off for “other reasons,” including foreclosure. Looking ahead, inventories of homes for sale could build as own ers become more confident about the market. In addition, many borrowers who lost their homes to foreclosure have had that blemish wiped from their credit reports, making them again eligible for FHA and other mortgages. This could pro vide a tailwind for the market. According to NAR estimates, up to 1.0 million such households have already restored their credit standing, and 1.5 million more could do so shortly. Still, several Note: REO sales are of real estate owned by lenders. Source: JCHS tabulations of Metrostudy data. PRICES ON THE RISE While the volume of new homes built is near record lows, the prices of those homes have hit a record high. Even with the slowdown in appreciation from 8.1 percent in 2013 to 3.5 percent in 2014, the median sales price of new homes stood at last year—some 35 percent above the median sales price of existing single-family homes. According to the National Association of Realtors, median prices for existing homes sold were up for the third consecutive year in 2014, rising 4.0 percent from 2013, to . As in the new home market, existing home prices benefited not only from low inventories but also from strong demand for higher-quality units. MBA survey data indicate that the average loan size for home purchase applications increased even faster than house prices in 2012–14, and hit a record high in March 2015. Meanwhile, the jumbo mortgage segment largely drove the increases in the MBA Mortgage Credit Availability Index last year. The relative easing of home price appreciation was apparent across the 20 metros tracked by the CoreLogic Case-Shiller indexes. At the high end, San Francisco posted a healthy 9 per cent rise in prices for the year, albeit significantly below the 23 percent jump in 2013. Price increases in Las Vegas also slowed from 26 percent to 7 percent in 2014. Meanwhile, Chicago and Washington, DC, were at the bottom of the list for home price appreciation, joined by formerly high-flying Phoenix. NEGATIVE EQUITY PRESSURES But despite their recent upturn, prices of low-tier homes remain far below their mid-2000s peaks, leaving many owners with neg ative equity. According to CoreLogic data, 16 percent of home owners with mortgaged units valued at less than were underwater on their loans at the end of 2014, compared with just 6 percent of owners of higher-valued homes. Zillow noted a similar pattern at year-end, finding that 27 percent of house holds with mortgages owning bottom-tier homes had negative equity, compared with 15 percent of those owning middle-tier homes and 9 percent of those owning top-tier homes. THE OUTLOOK Given how far housing markets have to go to regain even pre- boom levels, the slowdown in construction, sales, and price appreciation in 2014 set off some alarms. Indeed, the hous ing supply expanded less in the previous 10 years than in any decade since the 1940s, while existing home sales were running at late-1990s rates. Even so, a deceleration from the robust house price appreciation of 2013 could be a sign that markets are returning to balance as a result of stable interest rates and fewer sales of distressed homes. With foreclosures and delinquency rates on the decline and steady job growth holding promise of wage gains, housing markets thus appear poised for a new phase of growth mirror ing that of the overall economy. But like that of the economy, the recovery is likely to continue at only a moderate pace until income growth picks up and rising home prices help to reduce the number of underwater and distressed homeowners.

[Assistant] At the other end of the age spectrum, the large millennial gen eration (born 1985–2004) will have its own impact on housing markets. At more than 86 million, the number of people in this age group—already exceeding that of the baby boomers at simi lar ages—will increase over the next 20 years as immigration (typically of young adults) continues to pick up. Since renting is usually the first step in independent living, the millennials have already contributed to the robust growth in renter households over the past few years. Indeed, with their lower homeownership rates and slower transitions to marriage and childrearing, members of this generation will continue to have a profound impact on rental demand. But like generations before them, the millennials are likely to participate more fully in the first-time buyer and trade-up markets as they move into their 30s and 40s. Over the next two decades, the aging of the millennials will increase the population in the key 30–49 year- old age group by 17 percent. Millennials are also driving the increase in racial and ethnic diversity. The minority share of this generation is already As the US population becomes both older and more diverse in the coming decades, the demand for alternative types of housing will increase. Although the baby boomers will continue to drive much of this shift, the millennial generation will play an increasingly large role in the rental and first-time buyer markets. In fact, household growth—the key driver of housing demand—among this younger generation finally appears to be picking up. Many of these new households, however, face stagnant incomes and high student debt that limit their opportunities to make the transition from renting to owning.


[User] THE STATE OF THE NATION’S HOUSING at 45 percent, significantly higher than the 40 percent share among gen-Xers and 28 percent share among baby boomers. Hispanics alone make up 22 percent of the millennial genera tion, compared with 19 percent of gen-X and 10 percent of the baby boom. Hispanic millennials also outnumber Hispanic baby boomers by more than two to one.

[Assistant] And given that most of the households lost to death and other life events in the decades ahead are white, minorities are expected to drive 76 percent of net household growth over the next 10 years and fully 85 per cent over the next 20. The growing diversity of US households highlights the need for alternative types of housing that address a broad range of cul tural preferences. For example, minority households are more likely to be multigenerational, suggesting increased demand for larger homes that accommodate these family groupings. In addition, if minorities continue to have lower incomes and wealth than white households, their growing presence in the market will increase the need for more affordable housing options as well as for mortgage products suited to their financial circumstances.