[User] But even after seven consecutive years of growth, new residen- tial construction in 2016 was well below the 1.4–1.5 million unit annual rates averaged in the 1980s and 1990s. In fact, coming on the heels of the most prolonged and pronounced downturn since the Great Depression, housing completions in the past 10 years totaled just 9.0 million units—more than 4.0 million units less than in the next-worst 10-year period going back to the late 1970s. Conditions are particularly tight at the lower end of the mar- ket, likely reflecting both the slower price recovery in this seg- ment and the fact that fewer entry-level homes are being built. Between 2004 and 2015, completions of smaller single-family homes (under 1,800 square feet) fell from nearly units to only . Similarly, the number of townhouses started in was less than half the number started in 2005. Meanwhile, rental markets are extremely tight despite the rela- tively strong pickup in multifamily construction. According to the Housing Vacancy Survey, the rental vacancy rate fell for the seventh straight year in 2016, dipping to 6.9 percent—its lowest level in more than three decades. MPF Research reports that the vacancy rate for professionally managed apartments was also just 4.4 percent. While some rental markets showed signs of softening in early 2017—most notably in San Francisco and New York—there is generally little indication that increases in supply are outstripping demand. 3 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Indeed, rent gains across the country continue to far out- pace inflation. The Consumer Price Index for rent on primary residences was up 3.8 percent last year, while MPF Research estimates that rents for professionally managed apartments rose by a similar amount. With most new supply coming at the upper end of the market and strong demand pushing up rents across the board, the number of modestly priced units available for under $800 declined by between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million. Notes: The vacancy rate is calculated as the total number of vacant units for-sale, for-rent, and rented or sold but not yet occupied over the total number of units occupied, vacant for-sale or for-rent, and rented or sold but not yet occupied. Source: JCHS tabulations of US Census Bureau, New Residential Construction and Housing Vacancy Survey. HOMEOWNERSHIP DECLINES MODERATING, WHILE RENTAL DEMAND STILL STRONG After 12 years of decline, there are signs that the national home- ownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by in 2016, the strongest showing since 2006. Early indications in 2017 suggest that the upturn is continuing. Still, growth in renters continued to outpace that in owners, with their numbers up by last year. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY AFFORDABILITY PRESSURES REMAIN WIDESPREAD Based on the 30-percent-of-income affordability standard, the number of cost-burdened households fell from 39.8 million in 2014 to 38.9 million in 2015. As a result, the share of households with cost burdens fell 1.0 percentage point, to 32.9 percent. This was the fifth straight year of declines, led by a considerable drop in the owner share from 30.4 percent in 2010 to 23.9 percent in 2015. The renter share, however, only edged down from 50.2 percent to 48.3 percent over this period. With such large shares of households exceeding the tradi- tional affordability standard, policymakers have increasingly focused their attention on the severely burdened (paying more than 50 percent of their incomes for housing). Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001. The share of renters with severe burdens varies widely across the nation’s 100 largest metros, ranging from a high of 35.4 percent in Miami to a low of 18.4 percent in El Paso. While most common in high-cost markets, renter cost bur- dens are also widespread in areas with moderate rents but relatively low incomes. Augusta is a case in point, where the severely cost-burdened share of renters was at 30.3 percent in 2015. Regardless of location, the cost-burdened shares among lowest- income households (earning under $15,000 a year, roughly equivalent to working full-time, year-round at the federal mini- mum wage) are consistently high. In the nation as a whole, 70.3 percent of lowest-income households face severe housing cost burdens. Indeed, in certain metros such as Cape Coral and Las Vegas, nearly nine out of ten lowest-income renters are severely burdened. But even in the markets with the smallest shares, such as El Paso and Knoxville, six out of ten lowest-income rent- ers face these burdens. The scale and pervasiveness of severe cost burdens among lowest-income renters underscores the fundamental challenge of providing housing that these households can afford. A recent National Low Income Housing Coalition study found that for every 100 extremely low-income renters (earning 30 percent of area median income) in 2015, only 35 rental units were afford- able at the 30-percent standard, in adequate condition, and not occupied by higher income households. In seven metros, fewer than 20 units were affordable and available for every 100 extremely low-income renters. White, black, and Asian/other households are non-Hispanic and include those reporting a second race until 2003. After 2003, Asian/other includes all other households and those reporting more than one race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey. HOUSING MARKETS 2 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Housing markets continued to strengthen in 2016, with new and existing home sales, prices, and construction levels all on the rise. Still, single-family construction, traditionally the largest source of residential investment, remains well below historical levels. As a result, low inventories of homes for sale are driving nominal prices above pre-recession peaks in many metros. In rental markets, low vacancy rates are pushing up rents and keeping multifamily construction relatively strong. Easing these tight conditions is especially difficult where labor shortages and limited land availability constrain new housing supply. In percentage terms, how- ever, last year’s 5.6 percent increase is the smallest annual gain since 2010–2011. Moreover, housing starts were still running 14 percent below the 1.37 million unit annual rate averaged in the 1990s and 21 percent below the 1.49 million unit annual rate in the 1980s. TIGHTENING INVENTORIES OF HOMES FOR SALE Residential construction in the past decade has added fewer units to the housing stock than in any 10-year period in records dating back to 1968. The number of housing completions between 2007 and 2016 totaled just 8.98 million units, far below Notes: The top 100 metros are the largest metro areas by population as deﬁned by the 2015 American Community Survey. No change is deﬁned as an increase or decrease of less than 2% from the previous year. Source: JCHS tabulations of US Census Bureau, Building Permits Survey. Dollar values are adjusted for inflation by the CPI-U for All Items. Data for new homes include single-family units only. Data for existing homes include condos and coops as well as single-family units. 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. As a result, vacancy rates and inventories of homes for sale have fallen sharply. The national vacancy rate has receded to its 2000 level, erasing all of the run-up at the height of the hous- ing boom. The largest declines are on the rental side, where the vacancy rate was 6.9 percent in 2016—its lowest point since 1985. The vacancy rate for homes for sale, which had risen to 2.8 percent in 2008, was also back down to 1.7 percent last year. Adding to market tightness in many areas, the share of units held off market remains elevated, likely reflecting the contin- ued fallout from the foreclosure crisis. With so few units on the market, homes listed for sale sell quickly and often above the asking price. According to Zillow’s estimates, the median home sold in 2016 was listed for 93 days, 34 days less than in 2010. Listing times were even shorter in hot housing markets, averaging only 50 days in the San Jose and San Francisco metros and under 60 days in Dallas, Denver, and Seattle. House prices in these five markets were up 7.8 percent on average in 2016, exceeding the national average increase. Within metro areas, inventories at the lower end of the market are especially tight. According to Zillow data, only one-fourth of the homes for sale at the end of last year were in the bottom one-third of area homes by price while half were in the top one-third. PICKUP IN HOME SALES More than 6 million homes changed hands in 2016, an increase of about 4.5 percent from 2015 and 33 percent from the post- recession low in 2010. By NAR’s count, existing home sales were Note: Months of supply measures how long it would take the inventory of homes on the market to sell at the current sales rate. Source: JCHS tabulations of NAR, Existing Home Sales. The composition of home sales suggests that the homeown- ership market is strengthening. After three years of declines, purchases by first-time homebuyers accounted for 35 percent of sales in 2016, up from 32 percent in 2015, according to NAR. At the same time, Metrostudy data show that sales to owner- occupants with mortgages rose by 7 percent, indicating that traditional sales are once again driving markets. In contrast, sales of distressed properties continued to recede, dropping 19 percent in 2016.

[Assistant] CoreLogic reports that the share of existing single-family home sales that were either real estate owned (REO) or short sales fell to 8.9 percent, far below the 32.4 percent peak in 2009. The share of cash-only home sales—typi- cally to real estate investors—also declined for the fifth straight year, falling from a high of 38.8 percent in 2011 to 30.1 percent in 2016. The investor share of sales also continued its slide from the 30.9 percent peak in 2013 to 26.5 percent in 2016, approach- ing the pre-recession average of 22 percent. HOME PRICES MOVING UP By all major measures, home prices posted solid increases last year. NAR reports that the median sales price for existing homes was in 2016, up 4.9 percent in real terms from 2015. The Freddie Mac House Price Index, the S&P CoreLogic Case-Shiller Index, Zillow’s Home Value Index, and the FHFA Purchase-Only Index all registered inflation-adjusted rates of appreciation in the 4–5 percent range. In the 10 highest-cost areas in 2016, inflation-adjusted median home values were up 63 percent on average from 2000, to —nearly three times the national median home value of . Meanwhile, inflation-adjusted median home values in the 10 lowest-cost metros rose just 3.6 percent on average, to . Some of these lowest-cost metros were among the 19 markets (generally in the Midwest) where real home prices in 2016 were lower than in 2000. NEGATIVE EQUITY DOWN, BUT NOT OUT The steady climb in house prices has sharply reduced the num- ber of homeowners with negative or low equity (under 20 per- cent of the home’s value). According to CoreLogic, the number of households underwater on their mortgages dropped from 4.3 million in 2015 to 3.2 million in 2016, reducing their share of all homeowners from 8.4 percent to 6.2 percent. The number of households with low equity also fell from 9.5 million to 7.7 million over the year. HOUSING’S SHARE OF ECONOMY STILL LAGGING Residential fixed investment (RFI)—including housing con- struction, home improvements, expenditures on manufactured homes, and broker commissions on home sales—climbed for the sixth consecutive year, rising from $660.1 billion in 2015 to $706.1 billion in 2016. Spending on multifamily housing was at a 10-year Notes: Highest-/lowest-cost metros are the 10 with the highest/lowest median home values in December 2016. Home values are adjusted for inﬂation using the CPI-U for All Items less shelter. Source: JCHS tabulations of Zillow median home values. THE STATE OF THE NATION’S HOUSING high of $60.4 billion while spending on homeowner improve- ments hit $154.4 billion, according to Census Bureau estimates. However, real spending on single-family construction totaled a modest $243 billion last year, close to the level in 1996. Indeed, single-family construction spending accounted for only 34 per- cent of RFI in 2016, significantly less than the 49 percent share averaged in 1993–2006. Housing’s overall share of the economy was also low by histori- cal standards. RFI contributed just 3.8 percent of GDP in 2016, compared with 4.5 percent annually on average since 1959. At the same time, however, spending on housing services (rent and utility payments by renters, plus imputed rents and utility pay- ments by owners) accounted for 12.5 percent of GDP, exceeding its long-term average of 11.3 percent. THE CONSTRUCTION LABOR FORCE SHORTAGE At last measure in 2015, the construction industry employed 7.2 million workers and managers, about 20 percent fewer than in 2007 and roughly the same number as during the worst of the housing crisis in 2012. Meanwhile, the unemployment rate in the sector dropped by half between 2012 and 2016, falling from 13.9 percent to 6.3 percent. With demand for labor high, the lack of growth in construction employment suggests that many workers lost during the downturn have left the industry, creating a labor shortage that could constrain growth in housing construction. The workers lost during the recession were disproportionately young. Between 2007 and 2015, the number of construction employees under age 35 dropped by 34 percent and the number aged 35–44 shrank by 21 percent, while the number over age 45 declined by just 1.5 percent. As a result, the share of older work- ers increased from 33 percent to 41 percent over this period. THE OUTLOOK Homebuilders are optimistic about the market for new single- family homes. Indeed, the NAHB/Wells Fargo Housing Market Index reported that builder confidence in current and expected home sales was at a 12-year high in March 2017. Expectations about the multifamily market are more mixed, with permit- ting nationwide still higher than average levels in the 1990s or 2000s, but with some of the formerly hottest markets reporting a slowdown. Several factors could constrain housing activity in the com- ing years. Rising home prices and historically low inventories of homes for sale are barriers to entry for many potential homebuyers, especially those seeking to relocate to the high- cost metros where price appreciation is outpacing increases in the rest of the country. In addition, construction levels are still well below historical averages, particularly for the types of housing that are often the choice of first-time buy- ers, including smaller single-family homes, townhouses, and condominiums. Still, the millennials have so far had only a muted impact on housing demand. Indeed, their household formation rates remain at post-recessionary lows, at least in part because many continue to live with their parents or grandparents. According to the latest American Community Survey, the share of adults aged 18–34 residing in their parents’ homes increased again in 2015 to an all-time high of 35.6 percent. First of all, millennials not only outnumber members of genera- tion X (born 1965–1984) and the baby-boom generation (born 1946–1964), but they are also much more racially and ethnically diverse. A little more than 45 percent of millennials are minori- ties, compared with only 41 percent of gen-Xers and 29 percent of baby boomers. Moreover, immigration has yet to have its full impact on the size and racial/ethnic mix of the millennial popu- lation. In 2015, only 8.3 million (9.6 percent of) millennials were foreign born. By 2035, however, the Census Bureau projects that the number of foreign-born members of that generation will rise sharply to 20.4 million, more than doubling the share to almost 21 percent. As a result, the minority share of millennials will increase to 49.9 percent by 2035, making this the first genera- tion to be nearly majority-minority.


[User] Millennials will thus continue to fuel the growing diversity of neighborhoods across the country. In 1990, nearly one-half (47 percent) of the nation’s census tracts were more than 90 percent white. By 2015, that share was down to one-fifth. Meanwhile, the share of majority-minority census tracts increased from 20 percent (12,100 tracts) to 30 percent (22,100 tracts). Majority- minority neighborhoods already make up as much as 75 percent of census tracts in the San Jose metro area, 71 percent in the Los Angeles metro area, and 49 percent in the New York metro area. This dramatic shift in the age distribution of the US population will drive up demand for a variety of housing options, includ- ing multigenerational living. According to the 2015 American Community Survey, 20 percent of non-institutionalized adults age 65 and over, fully 9.3 million people, live in households with at least two adult generations. The prevalence of multigenera- tional living rises steadily among individuals over age 70, reach- ing 27 percent among individuals age 85 and over. The increasing diversity in the population may also lift demand for multigenerational living. Asians and Hispanics age 65 and Note: Three-year changes are trailing averages, adjusting for the break in the household series in 2003. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey and Population Estimates. THE ROLE OF IMMIGRATION A rebound in immigration helped to drive the recent pickup in household growth. Despite a modest slowdown from 1.04 million in 2015 to 1.0 million in 2016, net immigration is still well above the annual pace averaged in 2009–2011. Increased in-migration from Asia and Africa helped to offset out-migration to Mexico and Latin America, and lifted the foreign-born share of population growth from 37 percent in 2011 to 45 percent in 2016. Indeed, the foreign-born share of households increased from 9.5 percent to 14.7 percent over this period. Immigrants are especially likely to rent their housing, and thus made up an even larger share (about 20 percent) of renter households in 2015. At the same time, however, the foreign-born share of owner households was a healthy 12 percent. INTERNATIONAL AND DOMESTIC MIGRATION FLOWS International migration has been a vital source of population growth in several major metros that would otherwise have posted losses. For example, without the influx of nearly immigrants over the past year, the population in the New York metro area would have fallen by about rather than increase by about 35,500. In contrast, with only 26,000 immigrants to offset a net loss of nearly 90,000 domestic out-migrants, Chicago’s population fell by about 19,600 in 2016—the largest drop in any metro area. In other metros experiencing losses, such as Pittsburgh and Youngstown, international immigration was the only source of population growth amid high rates of domestic out-migration and low rates of natural increase. Immigration was also an important force in certain rural areas where the pace of natu- ral increase was either negative or too slow to offset domestic out-migration. In fact, while the total population of counties Note: Affordability of metros is determined by the share of renters paying more than 30% of income on housing. Source: JCHS tabulations of US Census Bureau, 2015 American Community Survey 1-Year Estimates. RISING INCOMES BUT RISING INEQUALITY According to the latest Current Population Survey, real median household income rose 5.2 percent in 2015 and median per capita income increased 4.8 percent. While annual income numbers are known to be volatile, these gains are still substan- tial. Indeed, median household incomes were up 7.3 percent in inflation-adjusted terms from the 2011 low, while personal incomes were up 9.6 percent from the 2010 low. Importantly, strong growth in per capita incomes was reported among 25–29 year olds, the age group that drives growth in both household formations and first-time homebuying. Their median per capita income rose 10.6 percent between 2011 and 2015—well above the increase for the US population overall. Meanwhile, the number of poor people living in neighborhoods with concentrated poverty (poverty rate of 40 percent or more) doubled from 3.0 million in 2000 to 6.0 million in 2015. The over- all share of the population living in concentrated poverty thus increased from 9 percent to 13 percent in 2000–2015, with fully 20 percent of the urban poor living in these conditions. High-income households are also becoming more concentrated in dense urban neighborhoods. In fact, urban population growth in 2010–2015 was fastest in neighborhoods where incomes were in the top decile, suggesting that the popularity of high- end urban living is growing. And in a reversal of long-term trends, the share of 25–34 year olds living in urban neighbor- hoods increased 0.4 percentage point in 2010–2015, while the share of 35–44 year olds was up by 1.0 percentage point. The shift to urban living is especially evident in Northeast metros, where the share of 35–44 year olds living in high-density areas increased nearly 3 percentage points over this period. The concentration of poverty has increased in both urban and suburban areas. Moreover, most of that increase is con- centrated in neighborhoods with already-high poverty rates. The poor population in high-poverty, medium-density areas (generally older first-ring suburbs) doubled from 3.1 million in 2000 to 6.4 million in 2015. Growth was even faster in high- poverty areas in the lowest-density communities of metro areas (exurbs), up 163 percent from 1.5 million to 3.9 million over this period. While the poor populations in non-metro areas also increased modestly, poverty rates in these communities jumped from 14.3 percent in 2000 to 17.4 percent in 2015—well above the 14.7 percent rate within metro areas. THE OUTLOOK According to the latest JCHS projections, household growth should average about 1.36 million annually in 2015–2025 and about 1.15 million in 2025–2035. These increases are in line with the pace averaged in the 1990s and early 2000s. Immigration, however, is a wild card in the current political climate. If the number of immigrants is cut as some federal officials have sug- gested, the slowdown in adult population growth would trans- late into somewhat lower annual household growth. Still, given that newly arrived immigrants often do not immediately form independent households, the impact of any new immigration controls on household growth may be delayed.

[Assistant] THE STATE OF THE NATION’S HOUSING Meanwhile, baby-boomer households will remain a force in housing markets even as they move into their 70s and 80s. Thanks to advances in health and longevity, the number of households headed by adults age 65 and over will increase 44 percent in 2015–2025 and 90 percent in 2025–2035.


[User] The magnitude of growth in older households will place new demands on the housing stock. Millions of homeowners will face the challenge of keeping their homes safe and accessible as they age. However, many may not have the resources to retrofit their homes with universal design features such as single-floor living and extra-wide doorways. Moreover, the fact that many older households live in lower-density sub- urban areas will make it difficult for social service providers and transportation systems to reach this large and geographi- cally dispersed population. The decision of millions of older households to age in place could also limit the supply of suburban homes available for sale to millennial households seeking to trade up. This was the smallest year-over-year decline since 2006 and may signal that the homeownership rate might be close to bottoming out. Although down across the board from 2004 to 2016, the size and trajectory of homeownership rate declines vary widely by race and ethnicity. The 7.5 percentage point drop among black households (from 49.7 percent to 42.2 percent) was by far the largest. By comparison, the white homeownership rate was down 4.0 percentage points (from 76.0 percent to 71.9 percent) while the Hispanic rate fell only 2.1 percentage points (from 48.1 percent to 46.0 percent). The year-over-year changes in 2015– 2016 followed this pattern, with the black homeownership rate off 0.8 percentage point, the white homeownership rate stable, and the Hispanic homeownership rate up 0.4 percentage point. Homeownership trends also differ meaningfully across metro- politan areas. In the nation’s 50 largest metros, shares of home- owners ranged from 47.9 percent in Los Angeles to 69.2 percent in Pittsburgh. According to American Community Survey data, homeownership rates fell in all 50 of these areas between 2006 and 2015, with Las Vegas posting the largest decline (9.0 per- centage points) and Buffalo the smallest (1.6 percentage points). More recently, though, rates actually increased between 2013 and 2015 in eight metro areas (Boston, Kansas City, Oklahoma City, Philadelphia, Portland, Sacramento, San Jose, and Seattle) and stabilized in three (Birmingham, Nashville, and Richmond). Although still on the decline, the national homeownership rate showed signs of stabilizing in 2016. The foreclosure inventory is approaching its pre-crisis volume and home purchase activity is slowly increasing. While high costs pose a challenge in certain markets, homeownership remains affordable in many metro areas of the country. Meanwhile, with conventional mortgage credit still tight, FHA continues to play a central role in serving first-time homebuyers. While the strengthening economy and the aging of the millennial generation may lift demand for homeownership, much uncertainty surrounds future economic, credit, and housing market conditions. ROLE OF THE FORECLOSURE CRISIS The persistent decline in the national homeownership rate has generated widespread discussion about the future of homeown- ing in the United States. According to a Joint Center analysis, recent changes in the age, race/ethnicity, and family structure of households explain little of the drop in homeownership because they largely offset one another. In particular, while the aging of the US population works to lift homeownership (because older adults have higher ownership rates), the growing diversity of the population exerts downward pressure (to the extent that racial/ ethnic disparities in income and wealth continue). A large unknown is whether former owners that lost homes to foreclosure will get back into the market. According to a recent Experian analysis of credit records, only 12.6 percent of own- ers who underwent foreclosure between 2007 and 2015 had bought other homes by the end of 2015. While loan products are available that allow former owners to buy homes before the foreclosure disappears from their credit histories, it is unclear how many will take advantage of this opportunity in the future. Moreover, given that many of those who experienced foreclo- sure were middle-aged, buying again would likely mean carry- ing mortgage debt into their retirement years. Note: Values are four-quarter rolling averages. Source: JCHS tabulations of Housing Vacancy Survey data. Along with their age profile, the racial/ethnic mix of recent homebuyers also shifted over the last 14 years. In 2015, the number of Asian homebuyers had increased 27 percent from its 2001 level. In contrast, the number of black homebuyers was still 33 percent below its 2001 level in 2015. The number of white homebuyers also remained 17 percent below its 2001 level, while the number of Hispanic recent homebuyers stood 4 percent below. As a result, Asian and Hispanic households accounted for larger shares of recent homebuyers in 2015 than in 2001, while white and black households accounted for smaller shares. The evidence continues to suggest that mortgage credit has tightened for households unable to meet standard under- writing criteria. The median credit score for owner-occupied home purchase originations increased from about 700 in 2005 to 732 in 2016, reflecting a sharp reduction in lending to households with lower scores. CoreLogic data indicate that just 0.1 percent of conventional first-lien home purchase mortgages last year were to borrowers with credit scores below 620 and 3.3 percent were to borrowers with scores between 620 and 659. Access to small mortgage loans has become a particular chal- lenge in metros with lower-cost homes. According to an Urban Institute analysis, the share of mortgage loans for less than $50,000 declined to 2.3 percent in 2014 after hovering near 3.0–4.0 percent from 2004 to 2011. While fixed origination costs and lower servicing income make these loans less attractive to lenders, the availability of small mortgage loans is critical to communities with large stocks of lower-priced homes. In these areas, limited access to mortgage credit could open the door to greater use of land contracts and other credit options that pro- vide fewer protections for borrowers. THE SUSTAINING ROLE OF FHA The Federal Housing Administration (FHA) plays a critical coun- tercyclical role in ensuring access to mortgage credit. Between 2005 and 2009, the number of FHA home purchase mortgages increased by more than 350 percent just as the number of conventional home purchase mortgages plummeted. While the number of conventional loans has notched up in recent years, FHA still accounted for 24.8 percent of first-lien home purchase loans in 2015. THE STATE OF THE NATION’S HOUSING first-time homebuyer share of FHA mortgages was nearly 82 per- cent, almost double the government sponsored enterprise (GSE) share of 44 percent. According to an Urban Institute analysis, first-time homebuyers with FHA loans have lower credit scores, higher loan-to-value ratios, and higher payment-to-income ratios than those with GSE-backed loans. The average FHA loan to repeat homebuyers is also smaller than the average GSE loan to both first-time and repeat homebuyers, reflecting FHA’s central role in financing the purchase of modestly priced homes. In 2015, FHA, Veterans Administration (VA), and other nonconventional mortgages accounted for 53.3 percent of home purchase loans originated to low- to moderate-income borrowers, along with 47.6 percent of loans to middle-income borrowers. Minority house- holds also rely disproportionately on government-insured loans, which accounted for 70.2 percent of home purchase mortgages issued to black homebuyers and 62.6 percent to Hispanic home- buyers in 2015. By comparison, the nonconventional loan shares were just 36.0 percent for white homebuyers and 16.6 percent for Asian homebuyers. Indeed, older households aged 55 and over accounted for fully 44 percent of renter household growth between 2005 and 2016. As a result, the share of renters in this age group increased to 27 percent last year—up from 22 percent in 2005. Renters under age 35 were responsible for the next largest share of growth (25 percent), driven primarily by their delayed entry into the homebuying market. Meanwhile, households in the 35–44 age range—the group that experienced the sharpest drop in home- ownership after the housing crash—contributed 14 percent of renter household growth in 2005–2016 despite a net loss of households in this age range. Meanwhile, the share of high-income households (earning at least that rented their homes increased from 12 per- cent to 18 percent from 2005 to 2016. High-income households thus drove 22 percent of the overall growth in renter house- holds, while households earning $50,000–99,999 accounted for an equal share. The move to renting among high-income house- holds—most with two earners—intensified in recent years, accounting for nearly half (47 percent) of the growth in renters between 2013 and 2016. According to the latest American Community Survey, the share of households renting their homes continued to grow in the majority of the nation’s largest 50 metro areas between 2013 and 2015. Increases in renting even picked up pace in several markets (including Houston, Jacksonville, and Miami) relative to the previous eight years. However, the renter share of house- holds actually fell in 11 of the 50 largest metros. Recent additions to the rental supply remain concentrated at the upper end of the market. According to preliminary data from the Survey of Market Absorption, the typical asking rent for a new unfurnished apartment climbed by 5.6 percent annu- ally in real terms in 2016, rising to $1,478. Although newly constructed units have always commanded a rent premium, the asking rent for new multifamily apartments increased sig- nificantly from 61 percent above the median asking rent for all existing vacant units in the 2000s to 73 percent in 2016. The 2015 American Community Survey data for the 100 largest met- ros confirm this trend, indicating that nearly half (46 percent) of the rental units built in 2010 or later were in the top quartile of area rents, while more than two-thirds fell into the top half. VACANCY RATE AT NEW LOWS Despite the recent burst of multifamily construction, the national rental vacancy rate slipped to a 30-year low of 6.9 per- cent in 2016. Indeed, rental markets in most areas of the coun- try remain tight. MPF Research reports that vacancy rates for professionally managed apartments in early 2017 were under 3 percent in 20 of the 100 markets it tracks, and under 5 percent in 65 of those markets. Under these historically tight conditions, rents were up both nationally and in the majority of markets in early 2017. The US Consumer Price Index for rent of primary residence rose at a 3.8 percent annual rate through April, far exceeding the 0.9 percent inflation rate for non-housing-related goods. According to MPF Research data, rents for units in professionally managed properties were up by 3.7 percent nationwide in early 2017, with increases in 91 of the 100 markets tracked. Rental market conditions did, however, show some signs of eas- ing last year. For one, the nominal rent increase MPF Research reported represents a slowdown from the 4.7 percent pace aver- aged in 2014–2015. Among the list of metros where rents were down Notes: US rental vacancy rates are four-quarter rolling averages. Metro data are for professionally managed apartment properties in the 100 market areas tracked by MPF Research. Sources: JCHS tabulations of US Census Bureau, Housing Vacancy Survey, and MPF Research data. Within markets, signs of easing were most apparent in the high- end segment. Vacancy rates for professionally managed (Class A) rentals were up in more than two-thirds of the 100 markets in the first quarter of 2017 from a year earlier, climbing more than 2.0 percentage points in many areas to a nationwide average of 6.4 percent. At the same time, however, vacancy rates in the lowest-quality segment (Class C) fell nationwide for the seventh straight year, to just 3.8 percent. STRONG RENTAL PROPERTY PERFORMANCE With ultra-low vacancy rates and widespread real rent gains, multifamily rental properties continued to perform well. According to data from the National Council of Real Estate Investment Fiduciaries (NCREIF), net operating income for investment-grade properties rose for the seventh consecutive year in 2016. While lower than the 10.7 percent gain in 2015, last year’s increase was still strong at 6.9 percent. The rise in nominal apartment property prices also slowed somewhat from a 14.8 percent increase in 2015, but remained a healthy 11.0 percent in 2016 according to Moody’s/RCA Apartment Price Index. As of March 2017, apartment property prices were still rising at an 8.1 percent annual rate, and exceed- ed the 2007 peak by 52 percent in nominal terms and 31 percent in real terms.

[Assistant] Meanwhile, annual investor return on investment dipped to 6.7 percent in the first quarter of 2017, following several years of double-digit gains. Still, investor demand for rental proper- ties remains strong, with NCREIF data showing a drop in the required rate of return or capitalization rate to 4.6 percent in the first quarter of 2017—one of the lowest rates posted in records dating back to 1982. Indeed, CBRE reports even lower cap rates for Class A multifamily properties in city centers of several large markets, including Los Angeles, New York, and San Francisco.


[User] Many property owners have taken advantage of years of strong financials to make improvements deferred during the downturn. The National Apartment Association (NAA) reports that capital spending per unit increased 13 percent annually from 2010 to 2015 in real terms. Community-wide upgrades often focus on fitness centers, business centers, clubhouses, and other common areas, while in-unit improvements typi- cally include installation of washer/dryers and high-end kitchen appliances. According to other NAA/Axiometrics research, these upgrades and other major renovations have lifted effective rents for apartment properties 8 percent on average. ROBUST MULTIFAMILY LENDING The value of multifamily debt outstanding rose by nearly $100 billion in 2016, marking the second year of record-high increas- es and lifting the total to over $1.1 trillion. More than two-thirds of the growth ($67 billion) came from federal sources, while banks and thrifts contributed $39 billion. In contrast, multifam- ily mortgage debt in commercial mortgage backed securities continued to shrink, by $15 billion. At the same time, however, MBA’s Multifamily Originations Index indicates that growth in the dollar value of loan origi- nations slowed from 31 percent in 2015 to just 6 percent last year. One of the reasons for this moderation may be changing multifamily lending standards.

[Assistant] According to a Federal Reserve survey in the first quarter of 2017, one-third of domestic banks reported tightening standards for commercial real estate loans secured by multifamily residential structures, up from 22.5 percent a year earlier and no reports of tightening two years earlier. Loan performance in the rental property sector continued to improve last year. Only 0.18 percent of all FDIC-insured loans secured by multifamily residential properties were in noncur- rent status (90 days past due or in nonaccrual status) as of the last quarter of 2016, down from 0.28 percent a year earlier. THE STATE OF THE NATION’S HOUSING According to Moody’s Delinquency Tracker, the noncurrent rate for commercial mortgage-backed securities (60 days past due, in foreclosure, or REO) was higher but still stood at a relatively low 2.5 percent in March 2017. Growth in rental demand may, however, moderate as the share of households opting to rent appears to be stabilizing near 37 percent. But with the large millennial generation now moving into their 20s and 30s, Joint Center projections point to solid growth in renter households over the next 20 years. And even if demand were to slow, there is still broad need for additional supply—particularly of rental units at the lower end of the mar- ket where ultra-low vacancy rates are pushing up rents. In the near term, rising vacancy rates at the upper end, record- setting apartment prices, and the specter of interest rate hikes have the potential to slow the growth in luxury units. But given how tight rental markets remain and the ongoing strength of demand, any slowdown in construction will likely be neither steep nor prolonged.


[User] Homeownership rates among young adults today are even lower than in 1988, and the share of cost-burdened renters is significantly higher. Soaring housing costs are largely to blame, with the national median rent rising 20 percent faster than overall inflation in 1990– 2016 and the median home price 41 percent faster. Although better housing quality accounts for some of this increase, sharply higher costs for building materials and labor, coupled with limited pro- ductivity gains in the homebuilding industry, have made housing construction considerably more expensive. Land prices have also skyrocketed as population growth in metro areas has intensified demand for well-located sites. In addition, new regulatory barriers have also served to limit the supply of land available for homes and increased the time, complexity, and risks of housing development. Along with soaring housing costs, weak income growth among low- and moderate-income households has also contributed to affordability pressures. The real median income of households in the bottom quartile increased only 3 percent between 1988 and 2016, while the median income among young adults in the key As we mark the 30th anniversary of the State of the Nation’s Housing series, this year’s report presents an opportunity to reflect on how housing market conditions in the United States have evolved over the decades. In addition to our usual look at current trends, the analysis examines how some of today’s conditions echo the past and are a yardstick for the progress we as a nation have and have not made in fulfilling the promise of a decent, affordable home for all. THE STATE OF THE NATION’S HOUSING –34 year-old age group was up just 5 percent. Meanwhile, gross domestic product per capita, a measure of total economic gains, increased some 52 percent in 1988–2017. If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—under- scoring how income inequality has helped to fuel today’s housing affordability challenges. Most of this new outlook reflects lower net foreign immigration and higher mortality rates among native-born whites. In combination, these changes mean slower growth in the number of older white households as well as of Hispanic and Asian households of most ages.

[Assistant] Although lower than the 1.3 million per year previously projected, net immigration is still expected to average 1.0 million annually over the next decade as growth of the native-born population continues to slow. As a result, immigrants will increasingly drive household growth, especially after 2025 when native-born population growth decelerates further.


[User] Relatively low headship rates among millennials also contribute to lower projected household growth. Despite the recent pickup in incomes, adults under age 35 are still not forming households at rates as high as previous generations at that age. This suggests that other forces are at play, including higher rates of college and gradu- ate school attendance and lower rates of marriage and childbearing. High housing costs may also be a factor, given the smaller share of young adults heading up households in expensive housing markets. Indeed, just 31 percent of adults aged 25–29 head their own house- holds in the nation’s 25 least affordable metros (measured by the share of renters with cost burdens), compared with 41 percent in the 25 most affordable metros.

[Assistant] Because of their sheer numbers, however, millennials have still helped to boost household growth. With the leading edge of this large generation now in its early 30s, adults under age 35 formed 10.5 million new households in 2012–2017, 1.5 million more than in the previous five-year period. Given that millennials born at the peak are now in their late 20s and the youngest are just 13, this generation will continue to lift household growth for years to come. The overall aging of the US population has important implications for housing markets, with 65–74 year olds now the fastest-growing age group. Since older adults generally live in established house- holds and strongly prefer to remain in their homes as they age, they have not historically added significantly to new housing demand. But given the size of the baby-boom generation, households headed by persons age 65 and over will continue to grow at an unprec- edented pace in the next decade, increasing the presence of older households in both the homeowner and rental markets.


[User] DEMAND SHIFT FROM RENTING TO OWNING After a decade of soaring rental demand, US households are edging their way back into the homebuyer market. Growth in the number of renter households slowed from annually on average in 2005–2015 to just in 2015–2017, while the number of owner Source: JCHS tabulations of US Census Bureau, 1970–2000 Decennial Censuses, and 2000–2016 American Community Survey 1-Year Estimates. 3 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY households rose annually on average in the past two years. This reversal lifted the national homeownership rate to 63.9 per- cent last year, with gains spread across most age, race, and ethnic groups. While too early to tell whether this is the start of a rebound, the homeownership rate appears to have at least stabilized. The choice between owning and renting depends on a variety of factors, including relative costs, expected length of stay, tolerance for financial risk, and the perceived benefits of each option. As such, there is no “ideal” homeownership rate. But the wide gap in white-minority homeownership rates conflicts with evidence from consumer surveys that renters of all races and ethnicities want to own homes in the future. Given both the desire to own and the abil- ity of many renters to sustain homeownership, restricted homebuy- ing opportunities for minorities should be a critical public concern. Age Group ● 25–34 ● 35–44 ● 45–54 ● 55–64 ● 65 and Over Homeownership Rates for Both Young Adults... Hispanics may be of any race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys Race/Ethnicity ● Black ● Hispanic ● Asian/Other ● White Another factor is the low level of single-family construction. Despite six consecutive years of increases, single-family starts stood at just units in 2017, well below the long-run annual average of 1.1 million. Indeed, only single-family homes were added to the stock annually in 2008–2017. Limited new construction may hold back existing home sales by reducing the tradeup options for current owners, deterring them from putting their own homes on the market. The slow growth in single-family construction reflects in part homebuilder caution following the dramatic housing bust. But risk aversion aside, a significant constraint on new residential construc- tion may be the dwindling supply of buildable lots. According to Metrostudy data, the inventory of vacant lots in the 98 metro areas tracked fell 36 percent in 2008–2017. Indeed, 21 of the nation’s 25 largest metros reported inventories that would support less than 24 months of residential construction. MULTIFAMILY CONSTRUCTION LEVELING OFF Unlike single-family homebuilding, multifamily construction ramped up quickly after the crash as rental demand surged. From a low of units in 2009, construction of multifamily units peaked at starts in 2015 and accounted for more than half the gains in housing starts over that period. However, the multifam- ily construction wave is now moderating, with starts down 1 percent in 2016 and 10 percent in 2017. This slowdown comes in response to both weaker overall rental demand and increasing slack at the upper end of the market. The Note: Months of supply measures how long it would take the number of homes on the market to sell at the current rate, where 6 months is typically considered a balanced market. Source: JCHS tabulations of National Association of Realtors (NAR), Existing Home Sales. The vacancy rate for all rental units includes single-family rentals and is from the HVS. Vacancy rates for Class A, B, and C units are from RealPage, and refer to professionally managed apartments. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys, and RealPage data. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Census Bureau reports that the national rental vacancy rate rose last year for the first time since 2009, ticking up from 6.9 percent to 7.2 percent. In 2013, units renting for $1,000 or more had the lowest vacancy rate of all rentals, while units renting for less than $600 had the highest rate. The situation has now reversed, with vacancies at 6.8 percent in the low-cost market and 7.7 percent in the high-cost market. AFFORDABILITY PRESSURES EASE, BUT REMAIN WIDESPREAD At last measure in 2016, some 38.1 million households spent more than 30 percent of their incomes on housing (the standard definition of cost burdened). While down by from 2015 and by 4.6 million from the peak in 2010, the number of cost- burdened households was still some 6.5 million higher in 2016 than in 2001. All of the drop in cost-burdened households is among homeowners, whose numbers fell by 5.5 million in 2010–2016. The pickup in income growth and the low interest rate environment no doubt helped, but this improvement also reflects the fact that millions of distressed owners lost their homes to foreclosure during the housing crisis and, more recently, that lenders have imposed stricter payment- to-income requirements for new buyers. Moreover, the number (4.1 million) and share (84 percent) of cost-burdened homeowners earn- ing under $15,000 was unchanged over this period. Nearly half of burdened owners at this income level are age 65 and over, and of that group, three-quarters are single-person households. The improvements in affordability for renters are much more mod- est. Although the share of cost-burdened renters retreated from a peak of 51 percent in 2011 to 47 percent in 2016, strong growth in renters overall meant that the number with burdens continued to rise through 2014. Their numbers did drop by in 2014–2016, but the previous increase of 6.5 million in 2001–2014 dwarfed this progress. In addition, more than half of the growth in cost-burdened renters since 2001 was among households paying more than half their incomes for housing. Indeed, the number of severely burdened renters rose by 3.6 million between 2001 and 2016. POLICY CHALLENGES Expanding the supply of lower-cost housing would help relieve the cost burdens of some households of modest means, but subsidies are the only way to close the affordability gap for the nation’s lowest-income families and individuals. Even so, increases in fed- eral rental assistance have lagged far behind growth in the number of renters with very low incomes, the group typically eligible for subsidies.

[Assistant] For their part, many state and local governments are finding new ways to leverage and supplement federal funds to spur develop- ment of below-market-rate housing. These strategies include rais- ing new revenues through bond issuances, real estate transfer taxes, and linkage fees, as well as using their regulatory powers to either incentivize or mandate inclusion of affordable units in new market-rate developments. However, state and local initiatives are generally modest in scale.


[User] THE OUTLOOK By many metrics, the housing market is on sound footing. With the economy near full employment, household incomes are increasing and boosting housing demand. On the supply side, a decade of his- torically low single-family construction has left room for expansion of this important sector of the economy. Although multifamily con- struction appears to be slowing, vacancy rates are still low enough to support additional rentals. In fact, to the extent that growth in supply outpaces demand, a slowdown in rent growth should help to ease affordability concerns. Indeed, the cumulative effect of strong growth in housing costs and modest gains in household incomes has left nearly half of today’s renters with cost burdens, including a quarter with severe burdens. The rising cost of homes for sale also raises downpayment and clos- ing costs, making it more difficult for individuals and families to make the transition to owning. HOUSING MARKETS 2 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY New construction, home sales, and housing prices ticked up modestly in 2017, but a slowdown in the multifamily sector and the rising costs of residential construction are preventing a stronger upturn in housing markets. Intense competition for the historically low supply of existing homes on the market has pushed up home prices in most metros, raising further concerns about affordability. Still, the 3.7 percent increase in RFI last year was the smallest annual gain since the recovery began in 2011. As a result, the sector contributed just 0.07 percentage point of the 2.3 percent real growth in gross domestic product (GDP) in 2017. As a share of the economy, RFI alone accounted for 3.9 percent of GDP. Adding in spending on housing services and furnishings, the combined housing-related share of GDP totaled 18.2 percent last year. Permitting outside of the core counties of large metros is still below the 1990s average, down 16 percent in the non-core counties of large metros and 6 percent in all other metro areas. Construction is even further below average levels from the 2000s, with permitting down 23 percent in non-core counties and 24 percent in other metros. Single-family permitting, which remained low across the board in 2017, accounted for an important share of activity outside of core areas. Last year, permits for single-family homes contributed just 43 percent of total permits issued in core counties, but 73–75 percent of permits in non-core counties and other metro areas. Nonetheless, entry-level housing still accounts for a small share of new construction. Only small single-family homes were completed in 2016, or 22 percent of single-family construction— down significantly from the 33 percent share averaged in 1999–2007. Moreover, manufactured home shipments totaled just 93,000 units in 2017, far below the annual average in the 1990s and even the annual average in the 2000s. Modest-sized homes are considerably more affordable for first-time and middle-market buyers. According to the Survey of Construction, the median price for a small home sold in 2016 was . The average sales price for a new manufactured home in 2017 was even lower, at $72,000. By comparison, the median price for all other single-family homes was in 2016. Manufactured housing is prevalent primarily in the South, where some 58 percent of the 6.6 million units nationwide are located. Another 21 percent are in the West, 14 percent in the Midwest, and Percent Change 2015––17 Residential Construction (Thousands of units) Total Starts Single-Family Multifamily Total Completions Single-Family Multifamily Home Sales (Thousands) New Single-Family All Existing Median Sales Price (Thousands of dollars) New Single-Family All Existing Existing Home Inventory Homes for Sale (Thousands) Months of Supply 4.4 3.9 -8.3 -11.4 Construction Spending (Billions of dollars) Residential Fixed Investment Notes: Components may not add to totals due to rounding. Dollar values are adjusted for inflation using the CPI-U for all items. Residential fixed investment includes spending on new housing construction and homeowner improvements, plus broker commissions on home sales. Sources: US Census Bureau, New Residential Construction and New Residential Sales; NAR, Existing Home Sales; Bureau of Economic Analysis, National Income and Product Accounts. IMPEDIMENTS TO HOMEBUILDING Four main constraints stand in the way of a stronger upturn in housing construction. First is the shortage of skilled work- ers. In a 2017 survey of homebuilders, 82 percent of respondents cited the cost and availability of labor as a significant problem. Unemployment in the construction industry fell to 6 percent last year, while inflation-adjusted construction wages and benefits were up 7 percent from 2001—somewhat less than the 9 percent increase for all private industry workers. These pay raises have not been suf- ficient to attract new workers, and the number of job openings in the construction industry approached by the end of 2017— the highest level in a decade. Third, developed land has become scarcer. Metrostudy data for 98 metro areas indicate that the number of vacant developed lots declined from 1.26 million in 2008 to just in 2017. As mea- sured by months of supply (where 24–36 months is considered a balanced market), the inventory shrank in 73 of those 98 markets in 2016–2017. The shortage of land for new housing is especially acute in the Western metros of San Francisco (9 months), San Diego (10 months), Seattle (10 months), Los Angeles (12 months), and Las Vegas (13 months). In contrast, developed land is more readily avail- able in many Southern and Midwestern markets, like Chicago (62 months), Atlanta (44 months), and Minneapolis (28 months). THE STATE OF THE NATION’S HOUSING percent contractor fee. While on par with 2017, this represents a 12 percent jump from 2014 after adjusting for inflation. Modular housing, constructed in factory conditions before being transported and assembled on site, could provide at least part of the answer. Including the value of land, the median price for a new modular unit was in 2016—nearly $90,000 less than for a new site-built home. To date, however, homebuilders have been slow to adopt this innovation, with only 15,000 modular homes added in 2016. Indeed, modular housing has never accounted for more than 4 percent of single-family construction in the United States. By comparison, modular housing accounts for 9 percent of new homes in Germany, 12–16 percent in Japan, and 20 percent in the Netherlands. PERSISTENTLY LOW INVENTORIES AND SLOWING SALES The National Association of Realtors reports that the number of homes on the market fell from 1.65 million in 2016 to 1.46 million in 2017. The single-family inventory alone shrank 11 percent, from 1.45 million to 1.29 million. In December 2017, for-sale inventories were at their lowest levels since at least 1999 for all homes and since 1982 for single-family homes. Meanwhile, the for-sale vacancy rate fell to 1.5 percent in the first quarter of 2018, matching the lowest readings since 1994. Of the 93 large metros tracked by Zillow, only one had a for-sale inventory of more than 6.0 months in 2017. Markets in many Western metros were especially hot, with supplies of less than a month in both San Francisco and San Jose. Home sales in Salt Lake City, Seattle, and Stockton also closely tracked the number of homes on the market. At the other extreme, the metros with the largest inventories of available homes were Bridgeport (6.9 months), El Paso (5.6 months), New Haven (5.3 months), Virginia Beach (4.8 months), and Scranton (4.8 months). Constrained by limited inventory, growth in home sales slowed from 4.5 percent in 2016 to only 1.9 percent in 2017, to a total of 6.1 million units. Although increasing for the third consecutive year, existing home sales led the slowdown with just 1.1 percent growth, to 5.5 million units. The only appreciable upticks in sales (2–3 per- cent) were in the South and West. In contrast, new home sales rose 9.3 percent from 2016, to units. This was the sixth straight year of growth from the five- decade low of units in 2011. More than half (55 percent) of new home sales were in the South, and about a quarter were in the West. Of the remaining sales, 12 percent were in the Midwest and only 7 percent in the Northeast. By the end of 2017, nominal home prices in 59 of the nation’s 100 largest markets exceeded their pre-crisis peaks. Prices were furthest above peak in metros that experienced only a modest downturn after the crash and then a surge in appreciation, such as Denver (62 percent above peak), Austin (58 percent), Dallas (55 percent), and Houston (44 percent). Other metros with above-peak home prices had posted less of a drop but also a milder rebound. In Albany, for example, home prices fell just 6 percent during the housing crisis, then climbed 10 percent through 2017 to stand 3 percent above the previous peak. Similar trends are evident in Little Rock, Oklahoma City, and Tulsa. In still other metros, home prices rebounded sharp- ly from a severe drop. Los Angeles is one example, where nominal home prices fell by 36 percent after the crash, but now exceed the previous peak by 3 percent. Real home prices in non-metro areas also climbed by a relatively strong 18 percent in 2000–2017. The largest increases were in the non-metro areas of North Dakota (85 percent), Hawaii (69 percent), Montana (52 percent), and South Dakota (45 percent). Moreover, in 19 of the 47 states with non-metro counties, home price appreciation in those areas outpaced statewide increases. Over this period, non-metro home prices declined in only four states—Michigan (down 6 percent), Ohio (6 percent), Connecticut (2 percent), and Indiana (2 percent). GROWING CONCERNS ABOUT AFFORDABILITY Rising prices have made homes less affordable, particularly at the low end of the market. In 2017, real home prices for the lowest- cost homes (selling for 75 percent or less of the median sales price) Notes: Homes for sale include both new and existing units. Months of supply measure how long it would take homes on the market to sell at the current rate, where 6 months is generally considered a balanced market. Source: JCHS tabulations of Zillow data. Meanwhile, increases in the median sales price of existing homes have outstripped growth in median household income for six years. As a result, the price of a typical existing home sold in 2017 was more than four times the median income. Topping the list is San Jose, where the median sales price was 10.0 times the median household income, followed closely by Los Angeles (9.5 times), Honolulu (9.2 times), San Francisco (8.9 times), and San Diego (8.1 times). On the flip side, price-to-income ratios were below 3.0 in 25 metro areas last year, including Pittsburgh, Rochester, Syracuse, Toledo, and Wichita. By comparison, nearly three-quarters of large metro areas had price-to-income ratios below 3.0 in 1988, while only 14 metros had ratios over 4.0.

[Assistant] Over the medium and longer terms, however, demographic forces will support a pickup in housing construction. The latest Census Bureau projections indicate that the population of 30–44 year olds, the age group most likely to buy new homes, will increase by 8.5 million over the next decade. Of course, the housing preferences of millennials, as well as the decisions that baby boomers make about aging in place, will determine the types and locations of homes demanded. The critical question, however, is whether the home- building industry can supply, and local regulations allow, enough new housing to meet the need for homes affordable to a broad range of households.


[User] 3 DEMOGRAPHIC DRIVERS 13 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY MILLENNIALS PROPPING UP HOUSEHOLD GROWTH The latest Census Bureau data point to moderate household growth in 2017. The Housing Vacancy Survey, the most consistent source of estimates, puts the increase at households, in line with growth in 2016 and well above the annual average in 2006–2011. All three major Census Bureau surveys show that household growth has picked up over the past three years, with increases ranging from to 1.1 million annually—above post-recession lows but short of the 1.35 million annual average in 2000–2006. The millennial generation is driving much of the rebound in house- hold growth, forming an average of 2.1 million net new households annually in 2012–2017. For example, when members at the peak of this large generation were aged 20–24 in 2011, only one in four headed an independent household. At ages 25–29 in 2016, that share increased to 42 percent.

[Assistant] By the time they reach the ages of 30–34 in 2021, half of this group will likely head households.


[User] Even so, millennials are not forming households at the same rates as past generations at the same ages. In fact, household headship rates among young adults are still declining, albeit more slowly than after the recession. Indeed, 26 percent of adults aged 25–34 were living with parents or other relatives in 2017, while 9 percent were doubling up with non-family members—both shares all-time highs. Still, population growth among young adults has outweighed relatively low headship rates, lifting new household formations and overall household growth. The aging of the US population has also boosted the number of older households because the baby-boom generation is so much larger than the preceding generation. Eight years after the oldest baby boomers hit 65, younger members of that generation are now turning 65 at a rate of 3.6 million a year. In the past 10 years alone, the number of older households grew by over 7 million, rising from one in five households to one in four. By 2035, one out of every three households will be at least 65 years old. Although wealth is growing, homeowners and those at the top have captured most of the gains, and millions of households have little or no wealth. Going forward, immigration will become an increasingly large, albeit unpredictable, source of population growth and therefore housing demand. THE STATE OF THE NATION’S HOUSING THE IMPORTANCE OF IMMIGRATION TO HOUSING As a major source of adult population growth, immigration has driv- en a significant share of US household growth over the past three decades. According to Census Bureau data, the number of foreign- born households more than doubled from 7.7 million in 1990 to 17.8 million in 2016, accounting for more than a third of the growth in households over that time. American Community Survey estimates show that the foreign-born share of household growth was even higher in 2006–2016, at 41 percent. Indeed, even given the Census Bureau’s new, lower projections of net immigration, the immigrant share of population growth will increase from 42 percent in 2018 to 67 percent in 2040. As the foreign-born share of population growth rises, so, too, will their share of household growth. Despite substantial gains at the low end of the income spectrum, the gap between rich and poor has widened. Average incomes for households in the bottom income quintile rose sharply in 2015–2016 but, at just $12,900 in inflation-adjusted terms, were still 5 percent below the previous peak in 2006 and 9 percent below the level in 2000. Meanwhile, average real incomes for households in the top quintile stood at in 2016, up 7 percent from the previous peak and 8 percent from the level in 2000. As a result, the average income of households in the top quintile was 16.6 times higher than the average income of households in the bottom quintile in 2016, compared with 14.0 times in 2000. In addition, the median wealth of white households in 2016 (was ten times higher than that of black households ($16,300) and eight times higher than that of Hispanic households ($21,400). Low minority homeownership rates are a factor, but the median net wealth of white homeowners was also roughly 2.5 times that of black and Hispanic owners. Moreover, home equity makes up a much larger share of household wealth for the average minor- ity homeowner, accounting for 56 percent among blacks, 65 percent among Hispanics, and 49 percent among all other minorities. By comparison, the share among white homeowners is just 38 percent. In sharp contrast, the median wealth of households age 65 and over was in 2016, fully 51 percent above the level in 1995. This increase has occurred despite a 19 percentage-point jump in the share of older owners carrying mortgage debt over this period, to 41 percent. In addition, the median amount of mortgage debt among these older owners was $72,000, more than double the inflation- adjusted average of $28,200 in 1995. GROWTH IN LOW-WEALTH HOUSEHOLDS With so much wealth accruing to so few, the number of US house- holds with little or no wealth is on the increase. After a modest rise in the 1990s and early 2000s, the number of households with less than $20,000 in wealth jumped during the last recession from 30.8 million in 2007 to 37.6 million in 2010. In 2016, after several years of economic recovery, 38.5 million households (31 percent of house- holds) had net wealth of less than $20,000, and 14.4 million of this group (11 percent of all households) had zero or negative wealth. THE STATE OF THE NATION’S HOUSING Minorities made up half of the nation’s low-wealth households in 2016, up from 39 percent in 1995. They also accounted for more than three-quarters of the growth in low-wealth households between 1995 and 2016. Indeed, as the number of minority house- holds increased over this long span, the shares with low wealth remained consistently high at 52 percent for blacks, 49 percent for Hispanics, and 30 percent for Asians and other minorities. Meanwhile, the share among whites also remained steady at a rela- tively low 22 percent. The numbers of working-aged households with little or no wealth are rising, particularly among adults approaching retirement—the time of life when wealth traditionally peaks. The number of 45–54 year olds with less than $20,000 in net wealth doubled from 3 mil- lion in 1995 to 6 million in 2016, while the number of 55–64 year olds with low wealth climbed from 2 million to 5 million. While population growth within these age groups accounts for some of this increase, the likelihood of having low wealth also increased. For example, the share of low-wealth households aged 45–54 rose from 17 percent to 26 percent over this period, while that of households aged 55–64 rose from 16 percent to 21 percent. Although the share did not increase, population growth alone pushed up the number of low-wealth households age 65 and over from 10 million in 1995 to 15 million in 2016. As younger cohorts move into this age group, how- ever, they will drive up both the number and share of retirement- age households with little financial cushion. With rising numbers of households with low incomes and little wealth, more people are living in poverty. Between 2000 and 2016, the population with below-poverty-level incomes grew by 28 per- cent (12.8 million). At the same time, the number of poor people living in high-poverty census tracts (with poverty rates of 20 percent or higher) rose by 41 percent or some 10 million. As a result, the share of the nation’s poor people living in high-poverty neighbor- hoods increased from 43 percent in 2000 to over half in 2016. The number of high-poverty census tracts in the United States also grew 53 percent from 13,400 to 20,600 over this period. HISTORIC LOW IN RESIDENTIAL MOBILITY The rate at which US households change residences has been declining for many years. According to the Current Population Survey, 11 percent of the population in 2017 moved to different homes within the preceding 12 months, down from 12 percent five years earlier and 13 percent in 2007. The American Community Survey also reported a 2 percentage-point decline in the mobility rate from 2006 to 2016. Although renters traditionally move more often than owners, their mobility rate has also dropped sharply, offsetting the impact of higher rentership rates. As a result, even though the number of people living in rental housing rose from 72.5 million in 1996 to 83.2 million in 2017, the number of renter-movers declined from 24.2 million to 17.9 million. The lower mobility rate among renters thus contributed 3.4 percentage points of the 5.3 percentage point decline in overall residential mobility. Resuming past trends, total net domestic migration to the Southeastern states of Florida, Georgia, and the Carolinas rebound- ed from a low of 86,000 in 2009 to in 2017. Meanwhile, domestic outflows from the Northeast and Midwest continued to increase in 2017. The three states with the largest net domestic outflows—California, Illinois, and New York—lost residents to domestic migration in 2017, more than double the net losses in 2011. Across age groups, interstate migration appears to have settled near the lows reached in 2010, with slight increases among millennials and baby boomers. The rate of domestic migration among 25–34 year olds rose modestly from 3.7 percent in 2010 to 4.0 percent in 2016, lifting the number of state-to-state movers from 1.5 million to 1.7 million. The number of domestic migrants in the 65-and-over age group rose even more, from to not only because of strong population growth within this age group, but also because of an increase in their rates of migration. At the county level, recent flows of domestic migrants are in keep- ing with long-term trends of urbanization and suburbanization. As a group, core counties of large metros consistently lost domestic migrants on net from 2010 to 2017, as did non-metro (rural) coun- ties. At the same time, non-core counties of large metros, as well as counties in medium-sized metros, continued to draw domestic migrants on net.

[Assistant] THE OUTLOOK Although the pace of household growth in 2017 still lagged long- term average rates, the outlook remains largely positive. With incomes and wealth rising, the growth and aging of the US popula- tion is expected to drive up household growth and therefore the demand for housing. Assuming that the current economic expan- sion continues, state-to-state migration should increase further, bringing new housing demand to different parts of the country.


[User] 1 / EXECUTIVE SUMMARY 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY CONTINUING SHORTFALL IN SUPPLY Just as the recent housing downturn was longer and deeper than any other since the Great Depression, the residential construction rebound has been slower. Since reaching bottom in 2011 at just new units, additions to the housing stock have grown at an average annual rate of just 10 percent. Despite these steady gains, completions and placements totaled only 1.2 million units last year—the lowest annual production, excluding 2008–2018, going back to 1982. The sluggish construction recovery is in part a response to persis tently weak household growth after the recession. On a three-year trailing basis, the number of net new households dropped below 1.0 million in 2008 and held below that mark for seven straight years, including a low of just in 2009. By comparison, even through the three recessions and large demographic shifts that occurred between 1980 and 2007, household growth still averaged 1.3 million annually and only dipped below 1.0 million once. With the economy finally back on track, household growth picked up to 1.2 million a year in 2016–2018, close to expected levels given the size and age composition of the population. As a result, the national vacancy rate for both owner-occupied and rental units fell again in 2018, to 4.4 percent, its lowest point since 1994. Although there have been brief periods when residential construc tion was similarly constrained, the duration of today’s tight condi tions is unprecedented. Since 1974, annual additions to the housing supply exceeded household growth by an average of 30 percent to accommodate replacement of older housing, additional demand for second homes, population shifts across markets, and some slack for normal vacancies. According to Joint Center for Housing Studies estimates, annual construction should now be on the order of 1.5 million units, or about higher than in 2018. Several factors may be contributing to the unusually slow construc tion recovery. For one, the housing boom in the early 2000s created an excess supply of homes. The vacancy rate for housing units for With the economy on sound footing and incomes ticking up, household growth has finally returned to a more normal pace. This rebound in homeownership comes amid worsening affordabil ity. In the wake of the recession, falling home prices and historically low interest rates produced the most affordable homeownership conditions in decades. After adjusting for inflation, the monthly pay ment on the median-priced home was just $1,176 in 2012—45 percent below the peak in 2006 and 36 percent below the level in 1990. Since then, interest rates have remained low but home prices have climbed steadily. Indeed, real prices were back within 2 percent of their 2006 peak at the end of 2018, according to the FHFA Home Price Index. As a result, the monthly payment on a median-priced home stood at $1,775 last year, just 3 percent below its 1990 level and within 17 percent of its 2006 high. Strong income gains among younger households helped to counter the increase, however, with median incomes of households aged 25–34 and 35–44 both growing more than 11 percent in real terms between 2013 and 2017. Notes: Household growth estimates are based on three-year trailing averages. Placements refer to newly built mobile homes placed for residential use. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys and New Residential Construction data. In the years ahead, demographic trends should support growing demand for homeownership as more members of the large mil lennial generation age into their 30s when homebuying peaks. According to the latest Joint Center projections, if age-specific homeownership rates remained at the same level as in 2018, household growth alone would add roughly 8.0 million home owners between 2018 and 2028. And if, consistent with recent trends, the overall homeownership rate rises by 1.6 percentage points from the 2018 level, growth in the number of homeowners could reach 10.1 million for the decade. At the same time, a rise in interest rates and home prices plus a tightening of credit, on top of the limited supply of entry-level housing, could put homeownership out of reach for many more households. The sensitivity of the market to changes in home buying conditions was evident at the end of 2018 when a jump in interest rates was followed by a slowdown in home sales. Although a retreat in interest rates in early 2019 helped to stabilize the mar ket, the near-term outlook for homeownership still depends on how trends in house prices, interest rates, household incomes, and credit availability affect affordability for first-time buyers. RENTAL MARKETS STEADY AMID SLACKENING DEMAND According to the Housing Vacancy Survey, the number of renter households fell again in 2018. Although down by just over two years, even this modest dip is in stark contrast to average annu al increases of nearly renter households in the preceding 12 years. The declines were widespread, with 31 states losing renters from 2015 to 2017. However, estimates show an uptick in early 2019, in keeping with Joint Center projections of about net new renter households annually over the coming decade. THE STATE OF THE NATION’S HOUSING 2019 4 Trends in rents and vacancy rates indicate that rental markets are still on solid footing. The Consumer Price Index indicates that over all rents rose at a 3.6 percent annual rate in early 2019, or twice the pace of overall inflation. Meanwhile, rents for professionally man aged apartments were up more than 3.0 percent in more than half of the 150 metros that RealPage tracks, with growth exceeding 5.0 percent in 25 of those markets. Low and falling vacancy rates are keeping the pressure on rents, with the national vacancy rate sliding from 7.2 percent in 2017 to 7.0 percent in the first quarter of 2019. Tightening occurred in all regions of the country and in about two- thirds of RealPage metros. These conditions seem somewhat at odds with the falloff in demand and the continued strength of rental construction. Indeed, rental completions were near a 30-year high at units last year, while starts rose 5.0 percent to units. But even as overall demand cooled, higher-income households kept up demand for new apartments. Indeed, even after adjusting for inflation, the number of renters earning at least $75,000 increased for eight consecutive years, rising by households in 2017–2018 alone and by some 4.6 million households since 2010. Changes in the rental stock have also offset some new construction, keeping absorptions in line with supply. Of the unit decline in rentals in 2017, most were single-family homes and apartments in two- to four-unit buildings that likely converted to owner occu pancy. Thus, even if homeownership rates continue to increase, low vacancy rates and shifts in the existing stock are likely to prevent a significant softening of rental markets. In fact, weaker overall rental demand could help to ease conditions at the low end. With most new construction targeting the high end of the market, there has been some potential for excess supply to filter down to lower rent levels. But with rental demand far outpacing additions to supply through 2016, this has not happened. In fact, reports that the vacancy rate for lower-quality rentals was only 4.8 percent at the beginning of 2019, down from 6.7 percent at the end of 2011. COST BURDENS IMPROVING OVERALL, BUT RENTERS STILL PINCHED The share of US households paying more than 30 percent of their incomes for housing, the standard definition of cost burdens, declined for the seventh straight year in 2017. The latest American Community Survey reports that the share of cost-burdened house holds inched down 0.5 percentage point to 31.5 percent—some 5.7 percentage points below the 2010 peak. The total number of cost- burdened households in the US also fell by 4.9 million in 2010–2017, to 37.8 million. Public concern about a rental affordability crisis has increased in many areas of the country as cost burdens have moved up the income scale. Households with incomes under $15,000 continue to have the highest burden rates, with 83 percent paying more than 30 percent of income for housing, including 72 percent paying more than 50 percent. The spread of renter cost burdens is most evident in expensive met ros such as Los Angeles, New York, San Francisco, and Seattle. In the nation’s 25 highest-rent markets, some 46 percent of renter house holds with incomes of $45,000–74,999 were cost burdened in 2017, Note: Contract rents are adjusted to 2017 dollars using the CPI-U for All Items Less Shelter. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY compared with only 30 percent of same-income households across all 100 largest metros. Severe cost burdens are also more common in the 25 highest-rent markets, affecting 28 percent of renters with incomes of $30,000–44,999 and 7 percent of those with incomes of $45,000–74,999. The comparable shares across all 100 largest metros are substantially lower at 16 percent and 4 percent, respectively. HOMELESSNESS ON THE RISE IN HIGH-COST STATES There have been notable reductions in homelessness over the past decade. According to HUD’s annual point-in-time counts, the number of people experiencing homelessness fell by 87,000 from 2008 to 2018 and by some 38,000 in the last five of those years. This progress reflects an expansion of permanent sup portive housing and the widespread adoption of the “housing first” model that provides housing without preconditions for changes in behavior. The improvements have been most evi dent among populations that have received targeted efforts and resources—veterans, families, and the chronically homeless.

[Assistant] THE STATE OF THE NATION’S HOUSING 2019 6 These two large generations will propel growth in 35–44 year-olds and lift the number of older adults to new heights. The Joint Center projects that the number of households in their mid-30s to mid-40s will increase by 2.9 million over the decade, while those age 65 and over should grow by an astounding 11.1 million. Meanwhile, the number of 45–64 year-old households will fall by 1.9 million as the smaller gen-X generation (born 1965–1984) replaces the baby boom ers in this age range. If current housing supply trends persist, house prices and rents will continue to rise at a healthy clip, further limiting the hous ing options for many. To ensure that the market can produce homes that meet the diverse needs of the growing US popula tion, the public, private, and nonprofit sectors must address constraints on the development process. And for the millions of families and individuals that struggle to find housing that fits their budgets, much greater public efforts will be necessary to close the gap between what they can afford and the cost of producing decent housing.


[User] 2 / HOUSING MARKETS 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Housing markets lost steam at the end of 2018 as interest rates rose and new construction, home sales, and price appreciation all slowed. But even as rates came back down in early 2019 and helped to stabilize markets, the national housing supply remained constrained by more than 10 years of historically low production levels. The tight supply of homes for sale is keeping the pressure on prices in much of the country, while high land prices, labor shortages, and restrictive land use policies limit development of moderate-cost housing. LATE-YEAR SLOWDOWN IN CONSTRUCTION Housing construction grew modestly for the year in 2018, with starts increasing 3.9 percent to 1.25 million units. The number of comple tions totaled 1.18 million, a gain of only 2.8 percent from 2017—the slowest annual growth rate since the recovery began in 2012. Until this cycle, single-family construction had been below current levels only once in the preceding 25 years. Moreover, single-family activity slowed sharply over the course of 2018, downshifting from an average of 6.2 percent year-over-year growth in the first nine months to 7.4 percent declines in the last three months. The slowdown continued in the first quarter of 2019. With the slow pace of single-family construction, real residential fixed investment (RFI) was down 0.3 percent in 2018. This was the first decline in RFI since 2011 and produced a slight drag on real GDP growth for the year. In addition, RFI accounted for only 3.9 percent of GDP, nearly a full percentage point lower than the annual aver age from 1987 to 2006. In fact, RFI’s share was lower only once in the 20-year period preceding the housing bust. Similarly, the 3.2 percent real increase in residential construction spending was the smallest gain since 2011. Combining Census Bureau estimates of the value of single-family and multifamily con struction and Joint Center estimates of homeowner improvement and repair spending, construction spending totaled $658 billion in 2018. Single-family construction accounted for just 43 percent of this amount, well below the 57 percent share averaged in 1995– 2006. In contrast, homeowner improvement and repair spending drove 48 percent of construction outlays last year, compared with 36 percent on average before the housing downturn. However, compared with annual averages in 1980–2016, pro duction of single-family homes was down 13 percent nation ally and in every region of the country last year, but especially in the Northeast (off 40 percent) and Midwest (off 35 percent). Construction levels were only 6 percent lower in the West and 2 percent lower in the South. In contrast, multifamily construction was significantly above long-run averages in the West (up 19 per cent) and the Northeast (up 18 percent), and more modestly in the South (up 7 percent). In the Midwest, however, multifamily starts were 14 percent below historical averages. In eight of the 50 metros, the growth in households exceeded the number of housing permits. San Francisco topped the list with only 79 permits issued for every 100 net new households, followed by San Antonio (80), Boston (82), Sacramento (88), Columbus (89), San Diego (94), Denver (97), and Phoenix (99). Vacancy rates in these markets fell about 2 percentage points on average over the decade, exacer bating already tight conditions in some areas. LIMITED SUPPLY OF NEW MODEST-COST HOUSING With millions of millennials moving into their prime homebuying years, demand for smaller, more affordable homes seems poised for a surge. So far, however, construction of modest-sized single-family homes has been particularly weak. Despite increases in 2017, small homes under 1,800 square feet represented just 22 percent of single- family completions, down from 32 percent on average in 1999–2011. Indeed, completions of large homes with more than 3,000 square feet outnumbered those of small homes for the first time in 2013 and have continued to do so for five straight years. The median sales price for small homes was in 2017, less than half the price for large homes. Construction of multifamily condominiums and co-operatives also held near post-recession lows last year, with completions of just 27,000 units. Moreover, many condos are even more expensive than single-family homes because of their locations, with a median ask ing price of for units completed in 2017. At the same time, construction of townhomes (attached single-family units) rose sig nificantly over the past year, up 8 percent to units—nearly double the level in 2011. Again, though, the number of new town homes was still well below levels in the early 2000s. CONSTRAINTS ON NEW DEVELOPMENT High land prices are one explanation for the lack of middle-market housing. Land costs rise when demand is strong and land use regulations limit the number of new units that can be built and/or impose significant costs on developers through fees and protracted approvals. According to Joint Center analyses of the Federal Housing Finance Agency (FHFA) data, the median price per acre of residen Note: Housing starts are based on 12-month trailing averages. Source: JCHS tabulations of US Census Bureau, New Residential Construction data. In addition to rising land costs, labor shortages are a growing concern for housing developers. According to the latest National Association of Home Builders survey, 82 percent of respondents expect the cost and availability of workers will be among the most significant problems they face in 2019. On a 12-month rolling basis, the number of construction job openings topped at the end of 2018, up 39 percent from a year earlier. With no discernible uptick in hiring, the unemployment rate for the industry fell from 6.0 percent in 2017 to 5.1 percent in 2018, its lowest level since at least 2000. FOR-SALE INVENTORIES ON THE RISE Home sales slowed last year after several years of moderate but steady growth. About 5.3 million existing homes were sold in 2018, down from 5.5 million in 2017. Sales of existing single-family homes fell 3.1 percent, to 4.7 million units, while sales of condos and co-ops dipped 2.9 percent, to units. New single-family home sales rose to units, or by just 0.7 percent in 2018—a fraction of the 12.0 percent gains averaged over the previous three years. Sales rose 5.6 percent in the Midwest and 2.7 percent in the South, partially offsetting the 20.0 percent drop in the Northeast and 1.8 percent decline in the West. The slowdown reflects a shift in consumer confidence in the face of rising interest rates and a sharp stock market drop at the end of 2018. According to the University of Michigan Survey of Consumers, 32 percent of respondents thought that homebuying conditions were bad in the fourth quarter of 2018, up 5 percentage points from a year earlier and the highest levels since 2008. Sentiment was essentially unchanged in the first quarter of 2019, even after inter est rates retreated. In fact, the number of existing single-family homes for sale never fell below its current level between 1982 and 2016. Tight inventories pushed the vacancy rate for the owner-occupied stock down again last year to just 1.5 percent, the lowest rate since the mid-1990s. At the same time, however, the inventory of newly built homes for sale was up 18 percent year-over-year at the end of 2018, to units. With sales slowing, the average months of supply of new homes was 6.1 through 2018, up from 5.4 in 2017 and the highest level since 2011. Although inventories declined somewhat in early 2019, the supply of newly built homes is still in line with or above average levels in the 1980s and 1990s. According to Joint Center tabulations of Zillow data, 46 percent of the for-sale inventory at year’s end was in the top third of homes by value within each market, while 31 percent was in the middle tier and only 23 percent was in the bottom tier. However, supplies of more affordable units may be turning a corner. After declining for four straight years, the number of homes for sale in the bottom and middle price tiers increased by 4 percent, while supply in the top tier continued to fall by 4 percent. Notes: Months of supply are based on three-month trailing averages for single-family homes only. Months of supply measure how long it would take the number of homes on the market to sell at the current rate, where six months is typically considered a balanced market. Sources: JCHS tabulations of NAR, Existing Home Sales; US Census Bureau, New Residential Sales. 11 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY MODERATION IN HOME PRICE GROWTH According to the FHFA All-Transactions Home Price Index, year- over-year home price growth slowed nationwide from 6.9 percent on average in the first three quarters of 2018 to 6.0 percent in the last quarter. The S&P/Case-Shiller National Home Price Index shows an even sharper slowdown, with price increases falling from a high of 6.5 percent in early 2018 to 4.6 percent in December, and then to 4.0 percent in early 2019. Nevertheless, home prices have risen year-over-year for more than 80 consecutive months. Nominal prices climbed 5.9 percent in 2018 as a whole, slightly faster than in 2016 and 2017. At the end of last year, nominal home prices stood 11.0 percent above the 2006 peak, 53.0 percent above the 2012 bottom, and 105.0 percent above the 2000 level. In inflation-adjusted terms, however, home price appre ciation slowed from 4.9 percent to 3.8 percent in 2016–2018. As a result, real prices were 7.6 percent below the pre-crisis high at year end, but up 45.8 percent from the bottom and 44.4 percent from the level in 2000. Home price growth decelerated in nearly two-thirds of the nation’s 120 largest metro areas and divisions at the end of 2018, compared with a little over a quarter of markets a year earlier. In the nation’s 10 most expensive housing markets, year-over-year home price appreciation slowed from 8.0 percent in the fourth quarter of 2017 to 6.7 percent at the end of 2018. Prices in these markets rose only 4.9 percent in early 2019. Price growth eased the most in Seattle, where appreciation fell from 14.4 percent at the end of 2017 to 6.8 percent at the end of 2018. Other high-cost metros where home price increases slowed include Sacramento (from 10.2 percent to 6.4 percent), New York (6.3 percent to 4.8 percent), and Los Angeles (8.5 percent to 7.6 percent). PERSISTENT AFFORDABILITY CHALLENGES Slower home price appreciation did little to improve affordabil ity. Prices for lowest-cost homes rose the fastest again last year. According to CoreLogic, prices for more affordable homes (priced at or below 75 percent of the metro area median) rose 6.9 percent on average in the last quarter of the year—nearly double the rate for more expensive homes (priced at or above 125 percent of the metro area median). The National Association of Realtors reports that the median sales price of existing single-family homes rose from in 2017 to Notes: The 10 lowest- (highest-) cost metros are in the bottom (top) decile of the 100 largest metros for median home values in 2018, based on Zillow estimates. Non-metro prices are weighted averages of all state non-metro prices, with each state's value weighted by the share of detached single-family homes. Sources: JCHS tabulations of FHFA, All-Transactions House Price Index; Zillow median home values. THE STATE OF THE NATION’S HOUSING in 2018 after adjusting for inflation, outpacing growth in the median household income for the seventh straight year. Home price-to-income ratios, a key measure of affordability, indicate whether household incomes are in line with home values. In 2018, the national median sales price for an existing home in 2018 was more than 4.1 times the median household income—somewhat higher than the 3.7 ratio averaged in 1990–2018. Although low inter est rates have kept monthly costs relatively manageable in many markets, buyers of higher-priced homes must have substantial incomes to cover downpayment and closing costs. 3 / DEMOGRAPHIC DRIVERS 13 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY PICKUP IN HOUSEHOLD GROWTH All three Census Bureau surveys that provide household growth esti mates point to an upturn. The Housing Vacancy Survey (HVS) puts the increase in the number of households in 2017–2018 at 1.5 million, while the Current Population Survey reports similarly strong growth of 1.4 million. Meanwhile, the American Community Survey shows a solid 1.2 million increase in 2017. THE ROLE OF MILLENNIALS Millennials, the largest generation in history, are moving steadily into their mid-20s and early 30s—the age groups most likely to Supported by rising incomes, household growth is now back to levels more in keeping with adult population growth. Even so, high housing costs have prevented many young adults from living on their own, especially in expensive metros. Growing income inequality is another serious drag on household formations. Over the next decade, the fastest- growing household types will be younger families and older empty-nesters—households with very different housing needs. The growing share of foreign-born households will also add to the increasing diversity of demand. THE STATE OF THE NATION’S HOUSING form new households. Measured as a three-year moving average, the US population aged 25–34 grew by 14.7 percent in 2002–2018 to a record high of 45.3 million, while households headed by someone in this age group increased by just 1.3 million (7.1 percent) over this period—about half the number that population growth alone would imply.

[Assistant] Their record-low headship rates put millennials on a much lower trajectory for forming independent households than previous gen erations. The question remains whether they will continue along this lower path as they age. If history is any guide, though, head ship rates of generations that have been slow to form households eventually catch up to those of their predecessors by age 40. What is different today, however, is that housing in many areas has become so expensive.