[User] THE HOUSING AFFORDABILITY BARRIER Although down across the country, household formation rates for young adults have fallen the most in the nation’s highest-cost mar kets. Between 2006 and 2017, headship rates for 25–29 year olds—the age group hardest hit by the Great Recession—dropped 9.1 percent age points in the 25 largest metros with the highest rents, but just –2028 Projected Annual Average Note: Household growth estimates are three-year trailing averages. Sources: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys; JCHS 2018 Household Projections. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys and National Population Estimates. THE STATE OF THE NATION’S HOUSING In sharp contrast, the average incomes of households in the bottom quartile have improved relatively little during the recent recovery— up just 8.0 percent in real terms from the 2014 low, compared with 12.1 percent among households in the top income quartile. Given this disparity in growth and the fact that bottom-quartile incomes fell more than top-quartile incomes during the downturn, the gap between high- and low-income households continued to widen. Adjusting for inflation, the average income in the top quartile rose 38.5 percent between 1987 and 2017, while the average income in the bottom quartile increased just 2.3 percent. Over the three decades, the average top-quartile income therefore increased from 9.2 times the average bottom-quartile income to 12.4 times. Immigrants are a major source of household growth and therefore of housing demand. Despite making up only 13.7 percent of the population in 2017, foreign-born households were responsible for 37 percent of household growth from 1990 to 2017. The immigrant share of homeowners increased from 7 percent to 12 percent over this period, while the immigrant share of renters increased from 12 percent to 20 percent. As the native-born population ages over the coming decades, the number of deaths will rise faster than births and increasingly cut into adult population growth. Immigrants will therefore pro pel a larger and larger share of both population and household growth in the years ahead. Even assuming that immigration is unchanged, the foreign born are projected to account for a major ity of household growth in 2018–2028 and a majority of popula tion growth by 2030. THE ADDED IMPACT OF DOMESTIC MIGRATION ON GROWTH According to the American Community Survey, 7.5 million people made interstate moves in 2017, slightly higher than the 7.2 million annual average from 2010–2017. The number of households making those interstate moves totaled 2.5 million, also slightly above recent annual averages. Like international immigration, domestic migration can contribute significantly to household growth in certain markets. Indeed, on average, interstate migrants accounted for at least half of household growth in six of the nation’s ten highest-growth states in 2010–2017, with shares reaching as high as 63 percent in Colorado and 82 per cent in Arizona. THE STATE OF THE NATION’S HOUSING Roughly 80 percent of all moves in a given year are in-state. According to the American Community Survey, the local mobil ity rate slipped from 11.5 percent in 2016 to 11.3 percent in 2017 because of fewer in-state moves by renters, who make up the majority of domestic migrants. The population living in rental housing that reported a local move within the previous year fell slightly from 24.8 percent in 2016 to 24.1 percent in 2017. Meanwhile, the domestic mobility rates of people living in owner- occupied housing increased modestly from 7.8 percent to 8.0 per cent over the year. Population aging explains some of the slowdown in domestic migra tion over the last 20 years, given that older adults are more likely to own homes and less likely to move. However, domestic mobility rates have dropped across all age groups, and particularly among young adults and renters. Moreover, despite relatively low mobility rates, older adults now account for a growing number of domestic migrants. Because of the strong growth in the population age 65 and over, the number of older-adult movers increased from 1.5 million in 1998 to 1.8 million in 2018, raising their share of all movers age 18 and over from 4.9 percent to 7.4 percent over the decade. THE OUTLOOK The latest JCHS projections, incorporating Census Bureau data through 2018, put average annual household growth in 2018–2028 at 1.2 million households, in line with recent averages. Some 2.9 million millennial households will move into the 35–44 year- old age group, contributing to the 1.6 million increase in the number of married couples with children and driving up demand for family housing. Factoring in replacement and second-home demand plus a minimum vacancy rate, these household growth projections imply baseline demand for new housing of 15.1 mil lion units in 2018–2028. The rebound in homeownership reflects a substantial pickup in homeowner household growth and a slowdown in renter household growth. According to the Housing Vacancy Survey, the number of homeowner households was up by 1.6 million in 2017–2018 to a total of 78.2 million, while the number of renters fell by to 43.2 million. PRICE PRESSURES ON POTENTIAL BUYERS According to the FHFA Purchase-Only House Price Index, nominal home prices climbed 5.7 percent last year on average, or 3.9 percent in real terms. With this increase, real home prices were up 41 per cent from 2011 to 2018 and stood within 2 percent of the 2006 peak. The median price for homes in the lowest tier continued to rise more rapidly than those for higher-cost units last year. Note: Change in owner households is the year-over-year change in the number of homeowner households. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 21 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY The National Association of Realtors reports that the real median sales price of an existing home hit in 2018, up from in 2011. Adding to affordability pressures, the average rate on a 30-year fixed-rate mortgage also rose 55 basis points last year, to 4.54 percent—higher than any annual reading since 2010. MIXED SIGNALS ON CREDIT CONDITIONS The credit environment for potential homebuyers in 2018 was mixed, with borrower credit scores and loan-to-value ratios indicating stable and tight conditions, but debt-to-income ratios pointing to some eas ing. According to the Federal Reserve Bank of New York, the median credit score for new mortgage originations was 758 in the fourth quar ter of 2018, within the 750–765 range where it has held since 2014, although well above the 720 median at the end of 2005 and 715 at the end of 2000. The bottom decile credit score hovered between 640 and 660 throughout 2014–2018, still significantly higher than the 597 level at the end of 2005 and 574 at the end of 2000. The median loan-to- value ratio for purchase originations has also been largely stable in the post-crisis period, remaining near 95 percent at the end of 2018. Notes: House prices, household income, and monthly homeowner costs are adjusted to 2018 dollars using the CPI-U for All Items Less Shelter. Monthly homeowner costs assume a 3.5% downpayment on a median-priced, existing single-family home, condo, or co-op, with property taxes of 1.15%, property insurance of 0.35%, and mortgage insurance of 0.85%. Sources: JCHS tabulations of NAR, Existing Home Sales; US Census Bureau, Current Population Surveys; Moody’s Analytics Forecasts; Freddie Mac, Primary Mortgage Market Surveys (PMMS) data. 23 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Qualifying for one of these mortgage products, however, remains an obstacle for many potential homebuyers. According to the Survey of Consumer Expectations, 67 percent of renters in 2018 would prefer or strongly prefer to own homes, compared with 19 percent who would prefer or strongly prefer to rent. But 68 percent of renters also thought that it would be somewhat or very difficult to obtain a mortgage last year, while just 17 percent thought it would be some what or very easy. For those who do qualify for mortgages, navigating the home purchase process can also be a challenge. The National Survey of Mortgage Originations found that while 77 percent of buyers that purchased homes in 2016 were very satisfied with their mortgage lenders, 28 percent were only somewhat or not at all satisfied that they received the lowest interest rate they could qualify for, and 45 percent were only somewhat or not at all satisfied that they paid the lowest possible closing costs. Moreover, significant numbers of respondents reported issues with the closing process. Fully 15 per cent said that they faced an “unpleasant surprise” such as having the closing rescheduled, needing more cash than expected, having mortgage terms change, or being asked to sign blank documents. STRONG GROWTH IN HOME EQUITY BUT NOT EXTRACTIONS Fueled by rapidly rising home prices and modest increases in mort gage debt, the aggregate value of home equity more than doubled between 2011 and 2018. According to the Federal Reserve’s Flow Notes: Median incomes are estimated at the core-based statistical area (CBSA) level. Only CBSAs with at least 30 home sales in 2017 are shown. Recently sold homes are deﬁned as homes whose owners moved within the 12 months prior to the survey date. Monthly payments assume a downpayment of 3.5%, property taxes of 1.15%, property insurance of 0.35%, and mortgage insurance of 0.85%. Affordable payments are deﬁned as requiring less than 31% of monthly household income. Sources: JCHS tabulations of US Census Bureau, 2017 American Community Survey 1-Year Estimates; Freddie Mac, PMMS data. THE STATE OF THE NATION’S HOUSING of Funds data, the total value of home equity held by households jumped from $7.0 trillion to $15.5 trillion over this period after adjusting for inflation.

[Assistant] THE OUTLOOK Although homeownership demand increased in 2018, the latest estimates show a reversal in the first quarter of 2019, underscoring the uncertain trajectory of the homeownership rate. In the near term, the strength of homebuying will likely depend on home prices and the direction of changes in employment, incomes, and interest rates. Over the longer term, though, homeownership trends will be shaped by a larger set of factors related to affordability, household demographics, tax law and the mortgage finance system, and the supply of homes for sale.


[User] JCHS projections suggest that, at current homeownership rates, population growth alone will add about 8.0 million households to the ranks of homeowners in 2018–2028.

[Assistant] Over the decade, the aging of the baby-boom generation is expected to boost the number of homeowners age 65 and over by some 8.4 million, lifting their share of all homeowners to 38.1 percent. Meanwhile, members of the millennial generation will drive up the number of homeowner households aged 30–49 by just under 1.9 million, to 30.2 percent. In contrast, the aging of generation-X will reduce the number of homeowners aged 50–64 by 2.1 million, to a share of 27.1 percent. These broad demographic shifts will bring substantial changes in the housing needs and preferences of homeowners that could, in turn, alter the configuration of the owner-occupied stock.


[User] 5 / RENTAL HOUSING 25 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY MODEST DECREASE IN RENTER HOUSEHOLDS All three major annual household surveys show a decline in renter households, although the size of the decrease varies. By the Current Population Survey’s measure, the num ber of renter households fell by in 2017–2018, while the Housing Vacancy Survey puts the decline at with a slight rebound in the first quarter of 2019. Although a year behind, the lat est American Community Survey also shows a drop of about renter households in 2016–2017. Despite the overall decline in renter households, there was strong growth in the numbers of older and higher-income households that now rent their housing. According to the Current Population Survey, the number of renter households headed by a person age 55 and over rose by about in 2018, following gains of on average in the prior two years. With these increases, older households now make up more than a quarter of renters. Households under age 35, however, still account for the largest share of renters at 38 percent. Rental markets are basically stable despite the upturn in homeownership. Demand from higher-income households is still on the rise, and construction of rental housing picked up again last year after a slight dip. Low vacancy rates across the board are pushing up the prices of multifamily properties, while also keeping the pressure on rents. According to the Survey of Construction, 53 percent of new multi family rentals completed in 2017 were in properties with at least 50 units, while only 6 percent were in buildings with less than 10 units. Many newly completed apartments offer added amenities. For example, 71 percent of the units that came on the market in 2017 had access to an on-site swimming pool and almost 90 percent had in-unit laundry. Although the number of renter households declined in 2018, demand for newly constructed units remained steady with the growth in higher-income households. According to the Survey of Market Absorption, 79 percent of apartments completed in 2017 were rented before the second half of 2018—on par with absorp tion rates in the early 2000s before the housing market downturn. At the regional level, demand early this year modestly exceeded new supply in the Northeast and Midwest, while supply essentially matched demand in the South and West. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Single-family rentals accounted for the largest losses, falling by more than units in 2017. Even with this sizable decline, though, single-family homes still make up about a third of the national rental stock, or about 15.8 million units. Moreover, since most of these lost single-family rentals were built between 2000 and 2009, it is likely that they were converted to owner occupancy rather than permanently removed from the housing stock. Just under half of the lost single-family rental units were in the South, where sin gle-family homes make up 38 percent of the rental stock. Although the number of single-family rentals increased in the Northeast in 2017, single-family homes still represent only a fifth of the region’s rental supply. While rental losses have been concentrated in smaller structures, new construction has continued to add units in larger buildings. The number of rentals in buildings with 20 or more apartments rose by from 2016 to 2017, with just over half of these additions in buildings with at least 50 apartments. While somewhat smaller than in previous years, the increase in rental units in buildings with 20 or more units in 2016–2017 was the fourth annual net gain in a row, bringing total additions from 2013 to 2017 in larger buildings to more than 1 million apartments. CONTINUING TIGHTNESS OF RENTAL MARKETS Rents nationwide continued to climb in 2018, up 3.6 percent for the year according to the Consumer Price Index. While this was a slight deceleration from 3.8 percent in 2017, rent growth picked up pace again in the first months of 2019. Year-over-year rent growth hit 3.8 percent in April, more than double the rate of inflation for other items. RealPage data for multifamily apartments in 150 metros also show an acceleration, with nominal rent growth increasing from 2.6 percent in the first quarter of 2018 to 3.3 percent in the first quarter of 2019. Meanwhile, CoreLogic data indicate that rent growth for single-family units increased from 2.7 percent in January 2018 to 3.2 percent in January 2019. RealPage data also show that rents for multifamily units are rising fastest in the West, where year-over-year growth climbed from 3.5 percent at the beginning of 2018 to 3.7 percent in the first quarter of 2019. Rents were also up 3.2 percent in the South in early 2019, but less than 3.0 percent in the Midwest and Northeast. Rent growth in all segments of the market continued in early 2019. With demand from higher-income households increasing, rent growth for higher-quality properties (with a rating of four or five stars) rose from 2.1 percent at the beginning of 2018 to 2.9 percent at the beginning of this year. At the same time, rent increases for lower-quality properties (with a rating of one or two stars) slowed slightly from 3.2 percent to 3.0 percent over this period. This is the weakest growth in that segment in the last four years, coinciding with the drop in the number of lowest-income renter households. Nevertheless, the persistent rise in rents for lower-quality units remains a cause for concern. Low vacancy rates have kept the pressure on rents. The Housing Vacancy Survey reports a further decline in the annualized rental vacancy rate from 7.2 percent in the first quarter of 2018 to 6.9 percent in 2019. Annualized vacancy rates are lowest in the West (4.8 percent) and the Northeast (5.3 percent), although tightening is evident across all regions. In addition, rental vacancies in 94 of the 150 metros tracked by RealPage fell from the beginning of 2018 to the beginning of 2019. Note: Change in occupied apartments, or net unit absorptions, is the change in physically occupied units from one period to the next. Source: RealPage data. Rates for ’s top-ranked properties declined through 2018 to 8.6 per cent at the beginning of 2019 after several years of softening. At the same time, the rate for lower-quality properties fell from 5.0 percent in the first quarter of 2018 to just 4.8 percent in the first quarter of 2019, while that for moderate-quality properties edged down from 5.6 percent to 5.4 percent. The Housing Vacancy Survey also shows a year-over-year decline in single-family rental vacancies from 6.2 percent to 5.8 percent in the first quarter of 2019. HEALTHY RENTAL PROPERTY PERFORMANCE With steady rent gains and low vacancy rates, net operating incomes for multifamily properties remained strong in 2018. The National Council of Real Estate Investment Fiduciaries reports that annualized growth of net operating income jumped from 3.4 per cent in the first quarter of 2018 to 7.5 percent in the first quarter of 2019. At the same time, National Apartment Association data show a 2.1 percent nominal rise in operating expenses and an 11.3 percent increase in capital expenditures. As a result, annualized returns on investment held steady at 5.9 percent in early 2019— well below the 10.4 percent average in 2013–2016 but still far out stripping overall inflation. According to the Real Capital Analytics Commercial Property Price Index, apartment prices cooled at the end of 2018 but still posted year-over-year growth of 9.0 percent. Growth in rental property prices continued to slow through the beginning of 2019, but prices were still up 7.1 percent year-over-year in April. The Northeast was the only region where nominal property prices lost ground last year, declining 3.3 percent after averaging 11.6 percent fourth-quarter to fourth-quarter growth for the previous three years. Nationally, prices rose the most for properties in car-depen dent suburbs and for garden-style apartment buildings. data include market-rate apartments in buildings with ﬁve or more units. Housing Vacancy Survey data include all apartments in buildings with ﬁve or more units. Vacancy rates are smoothed four-quarter trailing averages. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys, and data. 29 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY cent year-over-year at the end of 2018, indicating that growth in net operating incomes did not offset the rise in prices. Declines in all 13 metros covered by the index suggest that conditions are becoming less favorable for new multifamily investors.

[Assistant] The capitalization rate, or annual net operating income divided by property price or value, is an indicator of the rate of return inves tors can expect over one year. According to Real Capital Analytics, cap rates were largely unchanged from 2017, but stood at just 5.4 percent in the last quarter of 2018—their lowest point in a decade. Meanwhile, data indicate that cap rates averaged 5.0 percent for their highest-rated multifamily units in the first quarter of 2019 and 5.4 percent for mid- and lower-quality units. Across all property classes, cap rates are lowest in top-tier markets such as Boston, Los Angeles, and New York, and highest in bottom-tier markets such as Cleveland, Memphis, and Oklahoma City.


[User] Rising property prices have not slowed transactions, however. Real Capital Analytics reports 9 percent year-over-year growth in apart ment transaction volumes in the fourth quarter of 2018, following a slight dip in 2017. The mid- and high-rise segment led in deal vol ume with a 34 percent annual increase, while the garden apartment segment posted a relatively weak 2 percent uptick. Dallas and Los Angeles had the highest sales volumes in 2018, with transactions totaling more than $9.2 billion each. Access to financing has been critical to these property purchases. The Mortgage Bankers Association Originations Index, which tracks origination volumes for multifamily properties, increased 32 per cent year-over-year at the end of 2018—double the pace at the end of 2017. Multifamily mortgage debt outstanding was at a decade- long high of $1.4 trillion. With returns holding steady, delinquencies for multifamily debt last year were at their lowest level since the Federal Deposit Insurance Corporation began reporting these data in 1991. The noncurrent rate was just 0.14 percent in 2018, almost a full percentage point lower than in 2013.

[Assistant] Multifamily financing activity will likely remain stable this year, although credit conditions may tighten. A moderate net share of banks responding to the Federal Reserve’s Senior Loan Officer Opinion Survey reported tightening lending standards. At the same time, a small net share of respondents also noted weakening demand for multifamily lending.


[User] For lowest-income renter households, however, conditions have barely improved since 2011. More than four-fifths of households with incomes under $25,000 were at least moderately cost burdened in 2019, including 62 percent paying more than half their incomes for housing. The economic fallout from the COVID-19 pandemic has amplified the rental affordability crisis. According to the Census Bureau’s Household Pulse Survey for late September, renters earning less than $25,000 a year were much more likely to report lost employment income since the March shutdown. Indeed, more than half (52 percent) of lowest-income renters lost wages during this period, compared with 41 percent of all households. Not surprisingly, about one in five renters earning less than $25,000 also said they were behind on rent, compared with 15 percent of all renters and just 7 percent of renters earning more than $75,000. 2 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 According to the Pew Research Center, the share of adults aged 18–29 living with their parents climbed to 52 percent in July 2020, up from 46 percent at the start of the year and the highest level since the Great Depression. While many of these young adults may move to their own homes as the economy reopens further, some share of this group will remain out of the rental market either out of choice or necessity. Softening demand has been accompanied by a steady flow of new supply. data for 12.6 million professionally managed apart ments put the vacancy rate at 7.0 percent in the third quarter of 2020—the highest level since 2010. The sharpest rise was in the higher-quality segment, up 1.9 percentage points from a year earlier, to 10.5 percent. The increases are widespread, with RealPage report ing higher vacancies in 93 of the 150 markets they survey. finds that rents were down just 0.6 percent nation wide in the third quarter of 2020, but this decline represents a sharp reversal from the 2.8 percent gains averaged in 2019. With vacancy rates rising, the higher-quality segment has seen the largest drop in rents, off 2.2 percent. RealPage data indicate that third-quarter rents declined in 51 of the metros surveyed—six times the number a year earlier. But if the rental market is at a turning point, relatively tight supply com ing into the pandemic may prevent a steep downturn. In fact, market conditions appear to be relatively strong as apartment property prices Note: Apartment quality is based on the Building Rating System for professionally managed market-rate apartments in buildings with ﬁve or more units. Source: JCHS tabulations of data. Federal support provided through the CARES Act—including enhanced unemployment benefits, stimulus payments, and fund ing for state and local relief efforts—did manage to keep many renters afloat. The overall economy has also recovered to some degree, with the unemployment rate dropping from 14.7 percent in April to 6.9 percent in October. So far, state and federal mora toriums have slowed evictions, but without additional federal aid, many households that have missed payments may be unable to cover their back rents. UNCERTAIN DIRECTION OF THE RENTAL MARKET Even before the pandemic derailed the economy, rental housing demand had slowed as the millennials (born 1985–2004) moved into their prime homebuying years. The number of renter households fell in 2017 and 2018 before rebounding by in 2019, leaving their numbers essentially unchanged from 2016. However, the number of renters with higher incomes did continue to rise over this period, buoying the apartment market despite slackening demand overall. 3 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y continue to rise. According to Real Capital Analytics, prices increased at an 8.8 percent annual rate over the 12 months ending in September 2020, down only slightly from the 9.5 percent rate a year earlier. Moreover, construction of multifamily housing began 2020 well above the year-earlier pace. Although starts fell sharply during the spring lockdown, they made a quick and strong comeback. This lifted year-to-date starts in September above those in the same period in 2019, which was already the strongest year for multifamily construction in three decades. However, given the lengthy develop ment process, a falloff in multifamily volumes would lag any drop in demand for new rentals. One indication that multifamily construc tion is in fact headed for a slowdown is that permitting activity was down 10 percent from year-earlier levels through September. For many of these homeowners, the income losses come on top of cost burdens, leaving them struggling to pay their mortgages once the shutdown started. Among owners earning less than $25,000 annually, 69 percent were cost burdened going into the pandemic. Homeowners of color at this income level were also 5–10 percentage points more likely to have cost burdens than white homeowners. Once the pandemic hit and the economy shut down, however, homebuying came to an abrupt halt. New home sales were down 14 percent year over year in April and existing home sales were off 27 percent in May. At their present pace, sales of both new and existing homes are likely to exceed 2019 levels this year. Meanwhile, single-family construction started the year at its fastest pace since the Great Recession, running above a unit annual rate. Like home sales, though, single-family starts fell sharply in April, dipping below units before making a rapid recovery. Still, the supply of homes for sale has not kept up with demand, shrinking already tight inventories. Only 1.47 million existing homes were on the market in September, representing a 2.7 months sup New Home Sales Existing Home Sales Jan Feb Mar Apr May Jun Jul Aug Sep Year-to-Date Jan–Sep Notes: Year-over-year changes are based on seasonally adjusted data, while the year-to-date changes are not seasonally adjusted. Recent monthly data are subject to revision. Source: JCHS tabulations of US Census Bureau, New Residential Sales; National Association of Realtors (NAR), Existing Home Sales. As it was, however, the share peaked at just 8.8 percent in June and fell steadily thereafter.

[Assistant] These federal initiatives do not, however, cover 14.6 million home owners with mortgages, although some lenders are extending simi lar safeguards to these borrowers. Another notable gap in protec tions is for the nearly three-quarters of owners of manufactured homes whose units are titled as personal property rather than real estate. Indeed, the Household Pulse Survey for late September shows that owners of manufactured homes are more likely to report lost income since March as well as to be behind on their housing payments.


[User] As a result, people of color have far higher cost-burden rates and far lower homeownership rates than white households, and account for a disproportionately large share of the home less population. In 2019, some 43 percent of Black, 40 percent of Hispanic, and 32 percent of Asian households spent more than 30 percent of their incomes on housing, compared with 25 percent of white households. Although the higher rate of cost burdens among people of color in part reflects their generally lower incomes, disparities are evident even across households in the same income groups.

[Assistant] While high unemployment would normally be a significant head wind for the market, the combination of low inventories and low interest rates will likely keep upward pressure on home prices.


[User] Moreover, lending standards have tightened. With all the uncer tainty in the economy, the Mortgage Bankers Association Mortgage Credit Availability Index declined by 34 percent from February to September this year, dipping to its lowest levels since 2014. This The housing affordability challenges facing people of color are also clear from their disproportionately high rates of homelessness. In 2019, Black people accounted for just under 13 percent of the US population but nearly 40 percent of people experiencing home lessness. A large disparity also exists among Native Americans and Alaskan Natives, who collectively made up 0.9 percent of the population but 3.2 percent of those experiencing homelessness. The National Housing Act of 1949 established the goal of a decent home in a suitable living environment for all. In the more than 70 years since this landmark legislation, the country has not come close to this ideal, at least in part because there is no coherent national housing policy. Instead, US housing policy is an amalgam of measures intended to address past priorities and market conditions, and generally created without regard for any overarching goal. 8 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 After a year of healthy growth in home sales and new construction, housing markets stalled in mid-March 2020 with the COVID-19 outbreak. Since the summer, however, the rebound in both sales and construction has been surprisingly strong. Home prices have also continued their steady rise, propped up by the historically tight supply of homes for sale and record- low interest rates. These recent trends lend hope that the housing sector can lead the economy into recovery as it has in several past cycles.

[Assistant] Whether this momentum will continue depends largely on containment of the virus and the pandemic’s longer-term impacts on the labor market.


[User] SHARP DECLINE AND REBOUND IN HOME SALES Sales of existing homes were steady in the first quarter of 2020, on par with the first quarter of 2019. Once the economy began to shut down in response to the pandemic, however, year-over-year sales plunged 17 percent in April and 27 percent in May. Indeed, May sales sank to a 3.91 million unit annual rate, the lowest reading for that month in records dating back to 1999. Existing home sales began to bounce back in June to a 4.70 million unit annual rate, but were still down 12 percent year over year. The pace of sales then continued to pick up through the summer, climbing 10 percent in August (to a 5.98 million unit annual rate) and 21 percent in September (to a 6.54 million unit annual rate)—the strongest single month since 2006. Unlike existing home sales, new home sales are not constrained -by low inventories and can be recorded when the contract is signed, including before construction even starts. Year-over-year sales of new single-family homes were up 46 percent in July, 41 percent in August, and 32 percent in September. The sum mer surge put year-to-date new home sales some 17 percent higher in September than a year earlier, while existing home sales were off by just 0.2 percent. As a result, existing home sales overall were flat in 2019 at 5.34 million units. Home sales over the summer were strong for several reasons. First, interest rates dipped to historic lows as the economy entered a 9 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y recession in March. According to Freddie Mac’s Primary Mortgage Market Survey, the interest rate on a 30-year fixed-rate mortgage declined below 3.0 percent in July for the first time since the survey began in the early 1970s and stood at a record low of 2.8 percent at the end of October. Second, demographic changes favor homeownership. The Census Bureau’s most recent population estimates point to strong growth in the number of 30–44 year olds, the age group most likely to pur chase homes. In fact, adults in this age range accounted for half of total population growth between 2018 and 2019. In addition, the economic fallout from the pandemic has had a relatively modest impact on higher-income households, another demographic group likely to purchase homes. Third, the pandemic disrupted the usual seasonal pattern in home sales, which are typically low in winter months, increase in the spring, and then peak in early summer. This year, the pandemic delayed homebuying in April and May, likely shifting many pur chases to the late summer and fall. And fifth, innovations in homebuying and selling have stream lined the purchase process in ways that allow social distanc ing. According to Zillow’s 2020 Urban-Suburban Market Report, virtual searches were up significantly over the summer and virtual showings have also become more commonplace. In addition, the Federal Housing Finance Agency (FHFA) made loan closings easier by allowing virtual appraisals and remote notarization of documents. The recent strength of single-family construction is a sharp depar ture from 2019 when starts edged up just 1.4 percent, to units—the 12th consecutive year below the million mark. In con trast, construction of multifamily units continued to climb, with starts rising 7.5 percent last year to units. This was the first year that multifamily starts topped units since 1988. With its current momentum, the housing sector could lead a broader recovery. Historically, housing has helped to bolster eco nomic growth after recessions because starts and sales tend to rebound quickly. Moreover, the persistent deficit in homes for sale makes residential construction ripe for a continued upturn. Indeed, after more than a decade of limited homebuilding, the homeowner vacancy rate was just 1.1 percent in the first quarter of 2020 and the rental vacancy rate was 6.6 percent, both historic lows. Homebuilders are also optimistic about market conditions. According to the NAHB/Wells Fargo Housing Market Index, builder confidence hit 85 in October—the highest reading in the survey’s 36-year history. THE LOCATION OF NEW CONSTRUCTION The pandemic could lead to a change in housing location prefer ences. For example, if working remotely becomes the norm, demand could strengthen for homes in outlying communities that are Notes: Single-family and multifamily historical averages are of seasonally adjusted monthly data from January 1990 to September 2020. Recent monthly data are subject to revision. Source: JCHS tabulations of US Census Bureau, New Residential Construction data. 11 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y Measured in months of supply, for-sale inventories fell from an average of 3.9 months in 2019 to a record low of 2.5 months in September. Inventories were tightest for lower- and moderate- cost homes. According to CoreLogic, the supply was under 2.0 months in July for homes costing 50–150 percent of the metro area median sales price. Inventories of homes priced under 50 percent of the median also ticked down from 3.4 months in 2019 to 3.0 months so far in 2020, while those of homes costing more than 200 percent of the median fell from 5.3 months to 3.9 months. The pandemic both broadened and accelerated the tightening of supply. In January, for-sale inventories had already fallen year over year in 65 of the 96 large markets tracked by Zillow. By June, inventories were lower in 94 of those markets, with declines accelerating in all but two. The sharpest drop in the number of homes for sale was in the Northeast, where supplies in the Allentown, Philadelphia, and Syracuse metro areas were down by more than 30 percent. Several Western metros also posted declines of more than 25 percent, including Los Angeles, San Jose, and Seattle. Inventories in only two markets—Colorado Springs and San Antonio—increased from the prior year, but by only 2 percent or less. Although well below their 37 percent share in 1999, smaller homes accounted for 24 percent of newly completed houses last year. Notes: Data are 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. Source: JCHS tabulations of NAR, Existing Home Sales. Regulations on housing density effectively limit the supply of new housing and push up land prices, particularly in highly restricted markets with strong demand. According to FHFA data, the median price per quarter acre of land underneath existing single-family housing was in 2018, up 56 percent from 2012. At the median, land prices thus represented 39 percent of the total prop erty value. But in highly constrained markets, land costs accounted 13 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y After rising for more than eight consecutive years, nominal home prices are now 20 percent above their previous peak. Indeed, home prices more than doubled between 2000 and mid-2020, up 121 per cent. Even after adjusting for inflation, home prices climbed 51 per cent over this period and are back near their previous record highs during the housing boom in the mid-2000s. Prices for lower-cost homes continue to escalate the most, driven by high demand and limited supply. According to CoreLogic data, prices rose 7.6 percent in July for homes selling for 75 percent or less of the area median price, compared with 5.0 percent for homes selling for 125 percent or more of the area median. In both segments, home price growth accelerated during the spring and summer, although not quite to the pace in 2017 and 2018. Home price increases in the second quarter of 2020 were wide spread, with the FHFA All-Transactions Price Index showing nomi nal year-over-year gains in 117 of the nation’s 120 largest metro areas and divisions. The most rapid increases were in Western markets, including Boise (up 10.0 percent), Tacoma (up 7.6 percent), and Phoenix (up 7.2 percent). At the height of the economic dislo cation in the second quarter, price increases did slow in 81 of the 120 largest markets, with notable cooling in Las Vegas, Omaha, San Antonio, and Spokane.

[Assistant] Given such tight inventories and historically low interest rates, home prices will likely continue to rise in the short term. However, demand could drop if unemployment remains high and more temporary job losses become permanent. Freddie Mac forecasts a moderation in home price growth in 2021, while the CoreLogic Home than 120 percent over that period, but appeared to decline slightly in October.


[User] ELEVATED PRICE-TO-INCOME RATIOS Rising home prices relative to household incomes can impede access to homeownership, particularly for low- and moderate-income households. In 2019, the median sales price of existing single-family homes continued to rise faster than the median household income for the eighth straight year, lifting the ratio from 4.2 in 2018 to 4.3. This marked the fourth consecutive year that the median sales price was quadruple median household income. Moreover, the price-to-income ratio was higher in 2019 than in all but the three years before the housing bust, when it jumped from 3.9 in 2002 to 4.7 in 2005. What is different this time around, how ever, is that it took five years to reach its current level. And with interest rates so much lower now, buyers can bid up home prices but still keep their monthly payments relatively low, assuming they can afford the larger downpayments. 15 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y As 2020 began, low unemployment and rapid income gains were fueling steady household growth, the main driver of housing demand. But the demographic forces that could drag down future demand were already at work, including slowdowns in native population growth, immigration, and residential mobility. And when COVID-19 hit, the crisis not only brought huge losses of life and livelihoods, but also highlighted how growing income inequality has left many millions of households behind. Between 2007 and 2017, falling headship rates had kept household growth among the under-35 age group to just percent), even though the population aged 15–34 increased by fully 5.5 million (7 per cent) over that period. As headship rates rose in 2017–2019, however, the number of households under age 35 climbed by more than twice the growth in population aged 15–34. Still, there Housing Vacancy Survey American Community Survey 2000–––––:1 Note: Estimate for 2020:1 is based on year-over-year change in the four-quarter trailing average. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates via IPUMS USA, University of Minnesota, www.ipums.org. 1 6 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 large positive impact on household growth because the likelihood of heading a household increases with age. In addition, much of the decline in resident population growth is due to lower birth rates and fewer children under age 18—cohorts that are too young to form households. And finally, because the majority of immigrants do not immediately form their own households upon arrival in the country, the drag on household growth from lower immigration only becomes apparent over time. SLOWDOWN IN POPULATION AND HOUSEHOLD GROWTH In the short term, the fallout from the pandemic is sure to result in even slower population growth. International immigration was brought to a halt early in the year, and the spread of COVID-19 led to more than additional deaths by November. In addition, the ongoing uncertainty in the economy is likely to lead to lower births, which the Brookings Institution notes typically decline in times of turmoil. Pandemic-related job and income losses in 2020 will also delay household formations among young adults, the age group driving most of household growth. Beyond 2020, slower population growth is likely to lead to even lower household growth than previously projected. As it is, Joint Center projections from 2018, which were based on the 2017 Census popu lation projections, already anticipated a drop in annual household growth from 1.2 million in 2018–2028 to in 2028–2038. A prolonged slowdown in immigration would lower these projec tions even further. The 2017 Census projections assumed average net annual immigration of 1.0 million in 2018–2038 (roughly the same as in 2016), well above its 2019 low-series assumptions of just per year. Under that revised scenario, projected household growth resident population growth and immigration—were losing steam. Indeed, Census Bureau estimates indicate that US population growth edged up by just 0.48 percent last year, the lowest annual growth rate since 1918 according to the Brookings Institution. Weaker natural growth of the resident population reflects lower- than-expected births and higher-than-expected deaths even before the pandemic struck. According to the Census Bureau, natural growth was a full 30 percent below its 2017 projections last year, as it dropped below 1 million for the first time in decades. Births were 7 percent below projections, accounting for most of the difference, while deaths were 4 percent above projections, accounting for about a quarter of the difference. At the same time, the Census Bureau estimates that the net con tribution of international immigration to US population growth fell 15 percent in 2019, to just . This brought the total drop since 2016 to 43 percent. Immigration is sensitive to a variety of economic, political, and other factors, and wide swings over a few years are not uncommon. Still, immigration has been a significant source of household growth for decades, driving well over a third (38 percent) of all household growth from the mid-1990s to 2019. In the 2010s alone, foreign-born households contributed more than 4 million of the roughly 10 million households added over the decade. Slowing population growth is a long-term concern that has not yet affected current measures of household growth for several reasons. 17 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y But as the pandemic spread, the uptick in mobility rates came to a halt. For owners, the pause may be temporary, given the sharp rebound in home sales in July. On the rental side, however, the reports are mixed. RealPage notes that renter retention rates climbed to an all-time high for the month of July. At the same time, though, there was a surge in short-term lease-ups, suggesting that renter mobility rates could rise in the coming months. RISING INCOMES, BUT GROWING INCOME INEQUALITY Prior to 2020, strong income growth and falling unemployment were giving a lift to housing demand. Adjusted for inflation, the US median household income grew at a 2.5 percent average annual Notes: Cities are deﬁned following Kneebone & Nadeau (2015), where city tracts are either in the metro’s principal city or in cities with populations over . All non-city tracts in metro areas are suburban. Source: JCHS tabulations of US Census Bureau, 1990 and 2000 Decennial Censuses and and 2018 American Community Survey 5-Year Estimates. Higher mortality rates and lower levels of natural population growth, which are also not factored into the 2017 Census projections, would make future household growth lower still. After declining for decades, residential mobility rates for both owners and renters may have edged up slightly heading into the pandemic. Increased homebuying activity since 2016 stabilized the mobility rate of owners and even led to higher rates within certain age groups. Although the rate for renters fell again in 2019, the evidence suggests that apartment turnover was increasing. The National Apartment Association reported a small year-over-year decline in the share of units whose leases renewed last year, while RealPage noted a brief year-over-year decrease in apartment renewal rates in early 2020. Across-the-board income growth, however, did nothing to reduce the inequality between high- and low-income households. In fact, the gap between lowest- and highest-income households widened. After adjusting for inflation, the average annual income of households in the bottom decile ($7,800) increased just 5 percent from 2010 to 2019, or about $340. In contrast, the average income of households in the top decile (soared by 20 percent, or about $52,000. As a result, the average income of top-decile households increased from 35 times the average income of bottom-decile households in 2010 to 41 times in 2019. COVID’S SEVERE AND DISPARATE ECONOMIC IMPACTS The pandemic has reduced incomes, especially for those already struggling. The nationwide shutdown of businesses and organiza tions led to an unprecedented surge in unemployment as well as furloughs and other reductions in work schedules. More than 20 million workers lost jobs between March and April, and initial unemployment claims hit a record 6 million per week twice in those months. In the first five weeks of the shutdown alone, unemploy ment claims shot up by 20.4 million, the same as in the first year of the Great Recession. After 20 weeks, claims topped 50 million. According to the Census Bureau’s Household Pulse Survey in late September, 41 percent of all US households reported a pandemic- related loss in earned income since mid-March. Although eco nomic impact payments from the federal government provided temporary support, the drop in employment income hit Hispanic, Note: Incomes are adjusted for inﬂation using the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, and 2000 Decennial Censuses, and 2010 and 2019 American Community Survey 1-Year Estimates via IPUMS USA, University of Minnesota, www.ipums.org. Households of color are a higher share of younger households and accounted for just over 90 percent of additional households under age 35. The numbers of Black, Hispanic, Asian, and other households of color aged 35–64 also increased enough to offset the 2 million decline in white households in this age range over the past five years, with Hispanic households contributing much of this growth. Diversity within the 65-and-over age group is also slowly increasing, with the white share declining from 80 percent to 78 percent in 2014–2019. INCREASING DIVERSITY AND AGE OF HOUSEHOLDS With such a large share of household growth among people of color, income inequality has major implications for the strength of hous ing demand going forward. Hispanic households drove 36 percent of household growth per year) in 2014–2019, lifting their share of all households to 14 percent. Black households were responsible for 17 percent of growth per year) and made up 12 percent of all households in 2019. Asian households accounted for another 15 percent per year) of the increases, raising their share of all households to 5 percent. By comparison, white households drove Notes: Householders who are white, Black, Asian, or another race are non-Hispanic. Hispanic householders may be of any race. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. 2 0 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 increase in multigenerational living. The growing diversity of the pop ulation has also contributed to this rise, given that Hispanic, Asian, and foreign-born households are especially likely to be multigenera tional. The number of two-generation households, consisting of adult children at least 25 years old and their parents, rose by nearly 1.8 million (15 percent) from 2014 to 2019, to 13.8 million—accounting for roughly one out of every three households added during that period.

[Assistant] Still, the sheer size of the millennial and the baby-boomer popu lations should help to sustain housing demand over the com ing decade. The aging of the millennials—the largest and most diverse generation in US history—will drive up the number of households in their prime homebuying years. Millennials will also boost the number of families with children. Similarly, the baby boomers will increase the number and share of age 65-and-over households to unprecedented levels, pushing up the number of single- and two-person households. But the question remains whether persistent inequalities in income and opportunity will continue to make housing unafford able to millions of households of color. If the pandemic has dem onstrated nothing else, it has clearly shown how many households, young and old, lack the financial resources needed to withstand economic downturns and pay for housing without sacrificing other basic necessities. At the same time, the aging of Generation X—the smaller cohort born after the baby boomers—reduced the number of house holds aged 45–54 by some 1.6 million in 2014–2019, and by more than in 2018–2019 alone. This age group will continue to shrink until the mid-2020s, when members of Gen-X will begin to age out of this age range and the oldest millennials will begin to move in.


[User] Meanwhile, the number of married couples without young chil dren living at home grew by 1.8 million, or another 32 percent of all household growth. Households age 65 and over accounted for nearly all of the increase in these households.

[Assistant] The increase in these households reflects the long-term trend toward delayed marriage and childbearing. In fact, single-person households headed by people under age 35 now outnumber same- age married couples with children. Even so, the aging of the older millennials has lifted the number of married couples with children in the 35–54 year-old age group, and will continue to do so as more members of this large generation move into this age range.


[User] 21 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y HOMEOWNERSHIP RATE EDGING UP The US homeownership rate began 2020 with some momentum. The Housing Vacancy Survey reported a national rate of 64.6 percent for 2019, up slightly from 64.4 percent in 2018. While still far below the peak of 69.0 percent in 2004, the homeownership rate had recovered by more than a percentage point from the 63.4 percent low in 2016. Strong home sales over the summer suggest that the homeowner ship rate could increase again in 2020. The aging of the US population has also helped lift the number of homeowners. With continued strong growth in the 65-and-over age group, the number of older homeowners increased by more than 2.5 million from 2016 to 2019. Over this same period, the aging of Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. All of the recent growth in homeowners has been among households with higher incomes. According to the American Community Survey, the number of owner households increased by 4.9 million between Demand for homeownership firmed through 2019 and, after a dramatic but temporary slowdown when the pandemic took hold, is on track for a strong year in 2020. Low interest rates are attracting homebuyers, while rising home prices are lifting the housing wealth of current owners. Preferences for homeownership also remain steady. At the same time, though, ongoing economic uncertainty has led to tighter credit conditions and left many owners struggling to pay their mortgages. Fortunately, conditions today are much less threatening than before the foreclosure crisis. First, home price appreciation remains strong. According to the S&P CoreLogic Case-Shiller Home Price Index, seasonally adjusted prices surged 5.7 percent year over year in August 2020, compared to 3.1 percent in August 2019. In contrast, home prices were already falling as the econ omy headed into the Great Recession, leaving more and more homeowners underwater on their mortgages. Attitude surveys show continued enthusiasm for homeowner ship through 2019. According to Freddie Mac’s Profile of Today’s Renter and Homeowner conducted in April percent of renter respondents said it was either somewhat or extremely likely they would ever own a home. Millennial renters (aged 23–38) are especially likely to see themselves as future home owners, with 78 percent stating that they were somewhat or extremely likely to own. Among those expecting to move within the next five years or who were unsure about the timing of their move, 52 percent of millennial renters expected their next move to be to a home they buy. SHARP CONTRASTS IN AFFORDABILITY Continuing a decade of growth, US home prices increased again in 2020. The National Association of Realtors® (NAR) reports that the monthly median sales price of existing homes averaged through the first six months of the year, a 3.3 percent rise in real terms from 2019. Meanwhile, the Freddie Mac Primary Mortgage Market Survey showed a steady drop in the 30-year fixed mortgage rate from 3.93 percent in 2019 to 3.51 percent in the first quarter Jan Feb Mar Apr May Jun Jul Aug Sep Year-to-Date Jan–Sep Note: Monthly data are weekly averages. Source: JCHS tabulations of Mortgage Bankers Association (MBA), Weekly Applications Survey via Moody’s Economy.com. According to Federal Reserve Flow of Funds data, real home equity rose for 33 straight quarters from early 2012 to a new peak of $20.2 trillion in the second quarter of 2020. At the same time, mortgage debt grew only modestly to $10.6 trillion.

[Assistant] The ratio of aggregate home equity to the value of real estate thus held at 65.6 percent, the highest level since mid-1990.


[User] According to an Urban Institute analysis, the majority of the nation’s nearly 5 million owners of manufactured homes were excluded from federal foreclosure protections because their homes were titled as personal property rather than real estate. Many of these owners are in need of support, given that 35 percent work in industries that have had the greatest job losses during the pandemic. In addition, some 14.6 million owners with privately backed mortgages were not covered by federal forbearance plans and foreclosure moratoriums. The Joint Center found that the drop in interest rates would ben efit new homebuyers as well, despite a more than $9,000 increase in the median sales price of homes from 2019 to mid-2020. These conditions offer moderate-income buyers an opportunity to become homeowners. Based on a 30-percent-of-income affordabil ity standard, a 30-year fixed rate, and an average downpayment for Notes: House prices and monthly homeowner costs are adjusted to 2020 dollars using the CPI-U for All Items less shelter. Household incomes are adjusted to 2019 dollars using the CPI-U-RS for All Items. Monthly homeowner costs assume a 3.5% downpayment on a median-priced, existing single-family home (including condos and coops) with property taxes of 1.15%, property insurance of 0.35%, and mortgage insurance of 0.85%. Data for 2020 are the monthly averages from January to June. Source: JCHS tabulations of NAR, Existing Home Sales; US Census Bureau, Current Population Surveys; Moody’s Analytics Forecasts; Freddie Mac, Primary Mortgage Market Surveys. 25 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y tightness based on borrower characteristics (including credit score, loan type, and loan-to-value ratio), as well as lender and investor underwriting criteria. During the recovery from the Great Recession, the MCAI rose 90 points from December 2012 to December 2017 as access to credit eased, and then was essentially flat around 180 through the end of 2019. As the pandemic progressed in 2020, however, the credit availability index fell more than 60 points from January to September, holding near its lowest level in six years. These renters typically chose to delay buying a home (22 percent), live in cheaper housing (22 percent), or live in smaller units (21 percent). In addition, 23 percent of all renter respondents and about a third of millennial renter respondents altered their housing choices to afford daycare or childcare costs. Moreover, only 23 percent of respondents were aware that low-down payment programs existed. Indeed, the National Survey of Mortgage Originations found that fewer than half of borrowers taking out mortgages in 2017 were told about government programs providing low-downpayment options. While credit and financial constraints are very real barriers to homeownership for many, increased outreach to underserved communities and information about affordable loan options would improve access to ownership for those who want it. Racial disparities in homeownership also increased within the 65-and-over age group. In percent of older white house holds were homeowners, compared with 70.2 percent of same-age Black households. The homeownership rate for older white house holds remained in the 80–85 percent range for the next two decades, while the rate for older Black households peaked at 71.3 percent in 2003 and then dropped to 58.9 percent in 2019—doubling the gap to nearly 25 percentage points. The largest disparity in homeownership rates continues to be between white and Black households. According to the Housing Vacancy Survey, the homeownership rate for white households ticked up from 73.0 percent in 2018 to 73.3 percent in 2019, while the homeownership rate for Black households was essentially flat at 42.8 percent. This 30.6 percentage point gap is the largest dispar ity since 1983. And even though the number of Black households increased by some 3.1 million between 2000 and 2019, the number of Black homeowner households rose by just . Moreover, the pandemic has had a disproportionately large impact on lower-income workers, placing those that own homes at higher risk of foreclosure and limiting renter households’ ability to save for future downpayments. Other real barriers to homeownership also remain, including tight credit conditions, competing financial demands, and, significantly, the far-reaching impacts of exclusionary housing policies. Efforts to expand access to homeownership as well as educational and economic opportunity must not only address current economic pressures but also confront the lasting legacy of discriminatory housing policy head on. 2 8 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 The economic fallout from the pandemic has hit renter households particularly hard. Despite widespread job losses and limited income support, however, most have continued to make their rent payments. After a sharp spike in the summer, rental construction resumed a more moderate pace in September, but sales of multifamily properties fell amid rising vacancy rates and ongoing uncertainty. Meanwhile, with most new units intended for the high end of the market and continued losses of low-cost units, rental affordability continues to erode, and the concentrated location of affordable units reinforces inequities. HARDSHIPS FOR TENANTS AND LANDLORDS ALIKE Renter households have been especially vulnerable to the economic disruption caused by COVID-19. According to the Census Bureau’s Household Pulse Survey, 49 percent of renter households reported at least some lost employment income between mid-March and mid- September—a much larger share than the 36 percent of homeown ers. Income losses have been widespread, affecting some 59 percent of Hispanic renters, 53 percent of Black renters, and 45 percent of white renters. Nevertheless, most renters continued to make rent payments. As of late September, 15 percent of renter households responding to the Household Pulse Survey said that they were behind on rent. With the aging of the population, adults age 55 and over drove about two-thirds of renter household growth in 2004–2019, lifting their share of all renters from 22 percent to 30 percent. Indeed, the rent ership rate for older adults continued to increase in 2019, with their numbers up . While households under age 35 still made up just over a third of all renters, the slowdown in their household for mation rates kept their share of renter household growth to only 4 percent over this period.

[Assistant] Although the number of younger renters picked up by about in 2018–2019, the pandemic will likely slow any gains in 2020.


[User] But even as overall rental demand slowed in recent years, American Community Survey data indicate that the number and share of higher-income renters were on the rise. Some 7.9 million renter households were added between the homeownership peak in 2004 and 2019, bringing the total number to 44.0 million. With higher- income households driving over half of this growth, the number of renter households with incomes of at least $75,000 increased by 4.6 million in 2004–2019 and their share of renter households jumped from 18 percent to 26 percent. Meanwhile, the number of renter households with incomes under $30,000 grew by just over this interval, reducing their share of renters from 42 percent to 36 percent. Indeed, the number of lower-income renter households was on the decline in recent years, including a drop of more than in 2019 alone. However, the massive job losses due to the COVID-19 pandemic could reverse this trend, increasing both the number and share of renter households with lower incomes. The racial and ethnic diversity of renters increased from 2004 to 2019, with households headed by a person of color accounting for about three-quarters of growth and foreign-born households Note: Estimates for 2020:1 are based on year-over-year change in the four-quarter trailing average. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 3 0 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 just 0.5 percent. In contrast, rental supply and demand in subur ban areas were in close balance, lifting the vacancy rate by just 0.2 percentage point. RealPage data confirm that expanding supply and faltering demand are behind the jump in rental vacancy rates. Second-quarter com pletions of new units outpaced the growth in renter households in 92 markets, and net demand fell in 44 markets. Several of the metros with a drop-off in rental demand were high-cost markets, including some that were initially hard hit by COVID-19, such as Boston, New York, and San Francisco. Rental demand regained strength in the third quarter, with especially large increases in Southern and Western markets. Completions of rental units exceed ed renter household growth in just 29 markets and net demand was down from the previous quarter in only 11. While not yet capturing the third-quarter uptick in demand, the Survey of Market Absorption indicates that apartment take-ups at the high end of the market slowed sharply during the spring. Only a third of new units completed in the first quarter of 2020 and renting for more than $2,050 were leased within three months, the lowest absorption rate posted in the last five years. By comparison, two- thirds of newly completed units with rents under $1,050 were leased within three months. A slowdown in apartment COOLING AT THE HIGH END Although still positive, rent growth slowed slightly from March to September 2020 as the pandemic progressed. In September, howev er, the Consumer Price Index for rent of primary residence (a stable measure of overall rent growth that rarely shows nominal declines) rose at a 3.4 percent annual rate—down 0.3 percentage point from March but still more than four times the pace of prices for all other items. CoreLogic’s Single-Family Rent Index also showed continued growth of 1.7 percent in July 2020, although a slowdown from 2.9 percent a year earlier. At the same time, however, nominal rents for professionally man aged apartments were falling. According to , rents for units in higher-quality (4 & 5 Star) properties were down by 1.6 percent year over year in the second quarter of 2020. This was the first actual decline since 2010 and a significant drop from the 2.7 percent increase a year earlier. Rents for top-quality units continued to slide in the third quarter, off 2.2 percent year over year. Rent growth for moderate-quality (3 Star) properties slowed somewhat less, easing from 3.1 percent in the third quarter of 2019 to 1.2 percent in the third quarter of 2020. The slowdown in the lower-quality (1 & 2 Star) segment was even more modest, with rent growth dipping from 2.7 percent to 1.7 percent. The third-quarter cooldown in rent growth was widespread geo graphically, with about a third of the 150 markets tracked by RealPage reporting year-over-year declines. By comparison, only eight markets posted rent decreases a year earlier. Rents for profes sionally managed units dropped by more than 2 percent in 20 mar kets, 17 of which were in the South or West. Declines of more than 4 percent were posted in 11 markets, including Boston, Los Angeles, New York, and San Francisco. Softening rents in professionally managed properties reflect rising vacancy rates. data indicate that the vacancy rate for apartments in buildings with at least five units rose to 6.9 percent in the second quarter and held at 7.0 percent in the third quarter of 2020, nearly a full percentage point higher than a year earlier. Vacancy rates climbed the most in the higher-quality segment, up nearly 2 percentage points year over year in the third quarter, to 10.5 percent. Meanwhile, the vacancy rate at the lower end of the market inched up only 0.2 percentage point to 5.3 percent. Of the 150 markets tracked by RealPage, third-quarter vacancy rates were up year over year in 93 markets, with increases of more than 1.0 percentage point in 32. The vacancy rate in these prime areas hit 9.1 percent in the third quar ter as the rental supply increased by 3.8 percent but demand rose Notes: Prime urban areas are the most expensive urban markets. Urban/suburban areas are deﬁned based on density in the 54 largest markets that tracks. Source: JCHS tabulations of data.

[Assistant] With vacancy rates rising, rent collections lagging, and pandemic-related expenses increasing, the net operating incomes of rental property own ers will likely continue to fall in the coming months.


[User] MODERATING GROWTH OF MULTIFAMILY CONSTRUCTION Multifamily construction fluctuated wildly this year before settling back to a more sustainable pace in late summer. After reaching a 30-year high of units in 2019, starts of multifamily buildings with at least five apartments jumped to a unit annual rate in the first quarter of 2020. But once the pandemic hit and some state and local governments halted non-essential construction activity, seasonally adjusted starts fell 37 percent year over year in April and 31 percent in May. Multifamily starts then bounced back to their 2019 level in June and spiked in July, before gradually easing to a seasonally adjusted annual rate of units in September. Meanwhile, completions of multifamily apartments slowed from a to a unit seasonally adjusted annual rate in the first quarter of 2020. Much of this decline came in February when the seasonally adjusted number of new units coming on the mar ket was down 43 percent from the year-earlier peak. Activity in the following two months was also weak, with completions falling 20 percent year over year in April and 3 percent in May. Even so, completions were already more than 10 percent higher in June and July than a year earlier, before climbing to a strong annual rate in September. price growth accompanied the sharp drop in transactions. According to Real Capital Analytics data, year-over-year price growth exceeded 9 percent through April 2020 but then fell steadily to 6.7 percent in September—the lowest year-over-year pace since early 2011. Although still modest, delinquency rates for multifamily loans ticked up slightly from a near-historic low of 0.12 percent in the first quarter of 2020 to 0.19 percent in the second quarter. Defaults have likely remained low because most tenants continued to make rent payments and owners could use cash reserves to cover tem porary shortfalls.

[Assistant] According to the National Council of Real Estate Investment Fiduciaries, Note: Apartment property prices are nominal and indexed to 2000. Source: JCHS tabulations of Real Capital Analytics data.


[User] SOARING PRICES AMID HIGH DEMAND AND TIGHT SUPPLY Home sales bounced back quickly from a mid-2020 pause. Following a 26 percent drop in May, sales of existing homes were up 20 percent year over year on average from September 2020 through February 2021. Sales of new single-family homes rebounded even earlier and faster, increasing by more than 30 percent on average from June through February. For 2020 as a whole, existing home sales rose 5.6 percent and new single-family home sales jumped 20.4 percent. On the strength of these gains, total home sales were at their highest level since the peak of the housing boom in 2006. The combination of robust demand and limited supply lifted home prices to their fastest pace in over a decade. According to the S&P CoreLogic Case-Shiller Home Price Index, home prices rose 13.2 percent nationally in March 2021, up from 4.2 percent on average in the first quarter of 2020 and 3.5 percent on average throughout 2019. The FHFA House Price Index shows a similarly large year-over-year increase in the first quarter of 2021, with prices up by double digits in 85 of the 100 large metro areas and divisions that it tracks. The J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y 1 1 E X EC UT I VE SU MM ARY T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 1 2 HOMEOWNERSHIP RATES RISING, BUT NOT FOR ALL The national homeownership rate remains on an upward trajectory, driven by the aging of more millennials into their 30s and the strong income gains among these young adults. Census Bureau estimates for the first quarter of 2021 show a 0.3 percentage point year-over-year increase in homeownership, which comes on the heels of a 1.2 per centage point rise between the post-recession low in 2016 and 2019. Younger households continued to lead the growth in homeowner ship rates, with a 0.8 percentage point year-over-year increase in the first quarter of this year. Indeed, rates for households under age 35 were up 2.2 percentage points in 2016–2019, coinciding with an 8.0 percent rise in real incomes among renters in this age group. However, rapidly rising home prices mean that the upfront costs of homeownership are also increasing, particularly in markets where bidding wars have become commonplace. As it is, home price gains continued to outrun income growth last year, lifting the national price-to-income ratio to 4.4—the highest level since 2006. Two decades ago, the ratio was less than three times income in two- thirds of the 100 largest metros and above five times income in only a handful of markets. With house prices representing such large multiples of income, accumulating the downpayment and closing costs to buy homes could take years, particularly for younger households facing the twin burdens of high rents and significant student debt. Low interest rates and rapidly rising prices have in turn given a substantial boost to new residential construction. Single-family housing starts hit 1.0 million units at a seasonally adjusted annual rate in August 2020 and continued to exceed that pace through the first quarter of 2021. If sustained, this would be the first year that single-family starts have topped the one-million mark since 2007. Although part of the answer to the nation’s housing shortage, new construction can only do so much to ease short-term supply con straints. To meet today’s strong demand, more existing single-family homes must come on the market. The widespread availability of COVID-19 vaccines and resumption of more normal social interac tions may in fact encourage more homeowners to sell. Still, with interest rates so low and home sales at such a furious pace, prices are likely to continue their rapid ascent in the near term. According to the latest Housing Vacancy Survey, the Black-white homeownership gap stood at 28.1 percentage points in the first quarter of 2021, an improvement from the record high of 30.8 per centage points in 2019 but still large by historical standards. Indeed, the Black-white gap held under 27 percentage points for most of the 1980s and 1990s. Meanwhile, the Hispanic-white gap decreased by 1.8 percentage points between 2019 and the first quarter of 2021, to 23.8 percentage points. Accumulating the savings needed for downpayment and closing costs is difficult for most first-time buyers, but especially for renter households of color. According to Survey of Consumer Finances data, the median net wealth of Black renters was just $1,830 in 2019—a fraction of the $6,000 median for Hispanic renters and $8,300 median for white renters. In addition, only 8 percent of Black renters and 12 percent of Hispanic renters had more than $10,000 in cash savings, compared with 25 percent of white renters. Moreover, studies have found that white homebuyers are four times more likely on average than Black homebuyers to receive help from par ents in coming up with a downpayment. RENTAL MARKETS STABILIZING AFTER SLOWDOWN Just as rental demand cooled in urban areas last year, it heated up in suburban markets. According to data on the professionally managed stock, vacancy rates in prime urban neighborhoods soared from 7.2 percent in the first quarter of 2020 to 10.0 percent in the fourth quarter, before edging back down to 9.6 percent in the first quarter of 2021. At the same time, vacancy rates in prime suburban areas also started out at 7.2 percent early last year, but shrank to 6.3 percent by the end of 2020 and further to 6.0 percent in early 2021. Since many higher-quality rentals are located in prime urban areas, vacancy rates in this segment rose from 10.1 percent in the first quar ter of 2020 to 10.5 percent in the fourth, then receded to 9.9 percent early this year. Even before the pandemic, the number of people experiencing homelessness was on the ascent. In January 2020, HUD put the However, the markets for moderate- and lower-quality apartments remained tight, with little change in vacancies over this period. Rent growth for moderate-quality apartments eased from 2.0 percent to 1.5 percent in 2020, but then jumped to 3.0 percent in the first quarter of 2021—an even faster pace than before the pandemic. In contrast, rent increases for lower-quality apartments slowed from 2.3 percent in early 2020 to 1.8 percent in early 2021. The firming of rents and vacancy rates in prime urban areas and in the higher-quality segment in early 2021 suggests that the strengthening economy and easing of pandemic-related restric tions will make the dip in rental demand only temporary. The latest uptick in multifamily construction reflects that view, with starts of units in buildings with five or more apartments ris ing from a annual rate in the fourth quarter of 2020 to a annual rate in the first quarter of 2021. If sustained, this year would be the first time that starts in this segment have exceeded units since 1987. THE WORSENING CHALLENGE OF RENTER COST BURDENS Even after ten years of economic expansion and the lowest unem ployment rate in decades, the share of renter households with cost burdens in 2019 was down just four percentage points from the 2011 high. Some 20.4 million renters (46 percent) paid more than 30 percent of their incomes for housing that year, including 10.5 million (24 percent) severely burdened households that paid more than half of their incomes for rent. Although long the plight of lowest-income renters, cost burdens have moved up the income ladder. More than 80 percent of renters earning less than $25,000 were cost burdened in 2019, with a large majority severely burdened. Remarkably, 70 percent of renter house holds earning between $25,000 and $34,999 and nearly 50 percent of renters earning between $35,000 and $49,999 were also at least moderately burdened. The racial and ethnic disparities are stark, with 54 percent of Black and 52 percent of Hispanic renters having at least moderate burdens, compared with 42 percent of both white and Asian renters. For the many households that had to tap savings or go into debt to cover lost income last year, the impacts of the pandemic will linger well into the future. A Joint Center review of surveys conducted over the past year found that about a quarter of the renters with COVID- related job losses reported that they had substantially depleted their savings, another quarter had borrowed from families and friends, and a tenth had turned to payday or personal loans. Even assuming they regain their financial footing, these households will have fewer resources to draw on whether for everyday needs, emergencies, or for a downpayment on a home. Recovering from the devastating effects of the pandemic will be harder yet for those who have lost loved ones to COVID-19 or are themselves suffering from the long- term debilitating effects of the virus. ENDURING PRESSURES AMID THE RECOVERY Spurred by generous federal spending packages and the wide availability of COVID-19 vaccines, the US economy is steadily recovering. In the first four months of 2021 alone, the economy added more than 1.3 million jobs, reducing the national unem ployment rate to 6.1 percent. Even so, there were 7.6 million fewer jobs in February than a year earlier, and unemployment rates remained distressingly high for Black (9.7 percent) and Hispanic workers (7.9 percent), as well as for those with less than a high school diploma (9.3 percent). T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 1 6 dollar disasters has already escalated from $27 billion in the 1990s to $81 billion in the 2010s. Beyond disaster recovery, additional federal support is needed for mitigation programs that support at-risk com munities in efforts to improve the resiliency of their housing stocks. problems, leaks, and/or pest infestations, and put the total cost of addressing these needs at $127 billion. Moreover, it is likely that overall repair needs are even higher today, given that many homeowners had to put off these types of expenses during the pandemic. In the longer term, impending demographic changes cloud the housing outlook. Falling birth rates, sharply lower immigration, and higher-than-expected mortality rates have already left population growth at its lowest level in 100 years. Although this slowdown may help to alleviate the current imbalance between housing demand and supply, it also has serious implications for the broader economy. To sustain vibrant housing markets, policymakers must take mea sures now to reinvigorate population growth through increased immigration, promote higher birth rates through support for work ing families, and reduce the drag on economic growth from income and wealth disparities. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 1 8 The homebuying market remained hot even as the COVID-19 pandemic moved into its second year. Sales of both new and existing homes soared in early 2021 amid low interest rates and strong demand. In combination with record- low inventories, the homebuying frenzy has helped to push up home prices by double digits. Rents have also started to recover from last year’s drop. After years of underbuilding, housing developers have finally responded to favorable market conditions, with production increasing in line with projected household growth. CONTINUING SURGE IN HOME SALES Despite a sharp drop at the onset of the pandemic, home sales bounced back quickly in 2020. Several factors helped to buoy sales, starting with record-low mortgage interest rates. The pandemic itself drove up demand for more private living space, particularly among the higher-income households that were least affected by the eco nomic downturn. The aging of the millennial generation also helped by lifting the number of households in their peak homebuying years. Even after a 26 percent year-over-year plunge in May, sales of exist ing homes increased 5.6 percent for the year, to 5.64 million units. Meanwhile, condo and co-op sales fell slightly for the third straight year, to units. Sales rose across the country, with growth in the South (7.4 percent) and the Midwest (6.4 percent) far outpacing increases in the West (2.7 percent) and Northeast (1.4 percent). Existing home sales continued to gather steam in the first quarter of 2021, up 15 percent on average. Following a 16 percent year-over-year drop in April, new home sales jumped 53 percent in July, to units at a seasonally adjusted annual rate. For 2020 as a whole, sales of new single-family homes were up 20.4 percent, to units—the highest mark since 2006. New home sales were strong across all regions of the country, increasing 29 percent in the Midwest, 23 percent in the Northeast, 20 percent in the West, and 19 percent in the South. Robust growth continued in the first quarter of 2021, with seasonally adjusted single-family sales averaging 32 percent gains and running at an annual rate of units. Metro-level home sales followed a similar pattern. Early in 2020, slightly more than half of the 95 large markets tracked by Zillow posted year-over-year increases in sales. But after stumbling in April and May, sales were on the rise in fully 89 metros by the end of the year. Indeed, growth exceeded 50 percent in five markets, includ ing Baltimore (63 percent), Milwaukee (57 percent), and New Haven (53 percent). The six metros with year-over-year declines included Wichita (down 17 percent) as well as Ogden and Boise City (both 2 H O U SI N G MA R KETS INCREASINGLY ACUTE SHORTAGE OF HOMES FOR SALE The supply of existing homes for sale has never been tighter. This amounts to a 29 percent decline in just one year and a 37 percent drop in two years. Single-family homes accounted for only of the existing units available—the lowest level in records dating back to 1982. The decline in the supply of new single-family homes for sale was somewhat more modest. After starting the year at units, the number of new homes available bottomed out at units in August—a year-over-year drop of 13 percent. New home inventory, which includes homes under construction, picked up to more than units from December 2020 through March 2021 as housing production increased. Even so, supplies were still down 8 percent on average from the same period a year earlier. Supply constraints are nearly universal. Inventories in 87 of the 95 markets tracked by Zillow fell year over year in December 2020, up from 31 markets in December 2019. The number of homes available for sale fell by more than 30 percent in 14 of these metros, with the largest drops in mid-sized markets in the West, including Provo (43 percent) and Boise (40 percent). Declines were also severe in certain metros in the South, ranging from 34 percent to 36 percent in Augusta, Columbia, Jackson, and Raleigh. While still historically tight, for-sale inventories increased in some higher-cost markets, especially those on the West Coast, including San Francisco (50 per cent), San Jose (45 percent), and Seattle (16 percent). But the biggest reason behind the constraints on supply is the underproduction of new homes since the mid-2000s. New con struction creates housing choices for current homeowners who want to move, freeing up existing units for other buyers. Without that option, owners are more likely to remain in place. As a result, only a consistent increase in housing construction over a period of years will provide meaningful growth in inventory in many of today’s tight markets. HOUSING CONSTRUCTION AT NEW HIGHS Like home sales, new residential construction rebounded quickly in the summer of 2020 and continued at a strong pace through early 2021. Housing starts climbed 6.9 percent last year to 1.38 million units—the highest output since 2006 when production reached 1.80 million units. Completions were also up 2.5 percent to 1.29 million units, while permitting rose 6.1 percent to 1.47 million units. Although those projections do not account for lower-than-expected population growth in the past few years, the low level of homebuild ing since the mid-2000s likely means that new supply has not yet caught up with demand. In fact, Freddie Mac estimates that the housing supply at the end of 2020 was 3.8 million units short of the level needed to match long-term demand. In addition, some land use and zoning practices, as well as other local and state requirements, restrict the amount of land available for development. These regulations can raise the cost of land, espe cially in markets where demand is strong. According to FHFA esti mates, the median land value of a quarter-acre lot occupied by an existing single-family home was in 2019, some 60 percent higher than in 2012. Among the nation’s 100 largest markets, medi an land prices were highest on the West Coast, particularly San Jose ($1.2 million), San Francisco (and Honolulu (. In contrast, median land values were below $50,000 in 38 large mar kets located outside the West. Many communities also require multiple approvals for residential developments. While ensuring that legitimate public concerns are addressed, these approvals mean delays, uncertainty, and additional costs for developers. The process for approving construction of single-family units takes about 2.5 months on average if the project With more young and first-time homebuyers entering the market, demand for smaller, more affordable homes was on the increase in 2019. Completions of single-family homes with less than 1,800 square feet rose 13 percent that year, to units, slightly out pacing the 11 percent increase in midsized units (1,800–2,999 square feet). The share of larger homes (at least 3,000 square feet) declined 4 percent. Even so, smaller units accounted for only 24 percent of completions in 2019, about the same as in 2018 but well below the 32 percent share averaged from 1999 to 2011. Newly built units, however, are typically more expensive than exist ing homes. According to CoreLogic, new homes accounted for almost a fifth (19 percent) of premium home sales nationally (in the top third by price) from October 2019 through September 2020, but just 6 percent of entry-level sales (in the bottom third). However, new con struction does provide more than 10 percent of entry-level housing in nearly a quarter of the 100 large markets that CoreLogic tracks. Most of the metros with large shares of new entry-level homes—including Dallas (18 percent), Phoenix (14 percent), and Denver (11 percent)— are moderate-cost markets with substantial new construction. PERSISTENT CLIMB IN HOME PRICES With inventories and interest rates at or near record lows, home prices have moved progressively higher. Year-over-year increases in the S&P CoreLogic Case-Shiller Home Price Index jumped from 4.5 percent in March 2020 to 10.4 percent in December—the first double-digit rise since 2014. The runup that began in mid-2012 and continued for over 100 consecutive months is permitted under existing rules and 4.3 months if special approval is required. For multifamily projects, the average review times are 3.1 months and 4.9 months, respectively.

[Assistant] THE OUTLOOK Given the extremely limited supply of homes for sale across the country, prices will likely continue to rise for the foreseeable future even if interest rates tick up and more sellers put their homes on the market. But in the longer term, robust growth in housing con struction will be necessary to temper conditions in some of today’s overheated homebuying markets. However, homebuilders will need to meet the growing demand for homes of various sizes and at dif ferent price points, especially as millennials become a dominant force in the market.


[User] According to the FHFA Purchase-Only House Price Index, nominal home prices in the first quarter of 2021 increased by at least 10 percent in 85 of the 100 metro areas and divisions tracked by the index, up from just 5 markets the year prior. In 99 of those markets, the pace of the increases was escalating. The largest metro area gains were in Boise (28 percent), Austin (23 percent), and Tacoma (22 percent). Home prices in non-metro areas also climbed. The FHFA All-Transactions House Price Index, which generally shows slower appreciation than the Purchase-Only Index, indicates that non- metro home prices rose at a 6.0 percent annual rate at the end of 2020, up from 5.6 percent a year earlier.

[Assistant] Based on Moody’s household income projections, the national price- to-income ratio is expected to rise from 4.14 in 2019 to 4.37 in 2020. This would mark the fifth consecutive year that the median home price was more than four times median household income. By com parison, average price-to-income ratios were considerably lower at 3.21 in the 1980s, 3.31 in the 1990s, 4.01 in the 2000s, and 3.82 in the 2010s. Ratios in the nation’s 100 largest metros are expected to range as high as 10.9 in San Jose, 9.5 in Honolulu, and 9.4 in Los Angeles, and as low as 2.5–2.6 in Scranton, Syracuse, and Toledo.


[User] Meanwhile, home prices and rents have diverged sharply. Zillow reports that typical home values rose 9.1 percent nationally in January 2021, up from 3.7 percent a year earlier. At the same time, rent growth slowed from 2.9 percent to just 1.2 percent. This diver gence is widespread, with home price growth exceeding rent growth in all 99 large metros that Zillow tracks. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Early estimates suggest that the pandemic did little to interrupt the ongoing rise in household growth, with millennials continuing to head up new households at a strong clip. As these young adults marry and have children, they are reinforcing household growth outside of urban centers. The economic disruption caused by the pandemic did, however, widen already large inequalities in income and wealth. On top of slowing population growth, these persistent disparities prevent people of color and those with lower incomes from forming their own households, in turn reducing longer-term demand for housing. UPTICK IN MILLENNIAL HOUSEHOLDS The pandemic hit at a time when household growth, the pri mary driver of housing demand, was strong and accelerating. By American Community Survey estimates, the number of US house holds increased by 1.3 million per year on average from 2016 to 2019—significantly faster than the annual increases aver aged in 2013–2016. By both of these measures, household growth had been running well above the 1.2 million mark—the pace that Joint Center projections suggest would be due to population growth and demographic shifts alone. The economic shutdowns starting in March 2020 had only a lim ited and temporary impact on headship rates and therefore on household growth. When the unemployment rate spiked to 14.8 percent in April, many young workers were unable to sustain their own households and moved back in with their parents. However, 3 D E MO G R A P HI C DRIVERS According to Housing Vacancy Survey data, the total number of households was up by 1.5 million in the first quarter of 2021 from a year ear lier, largely on the strength of higher headship rates among these young adults.

[Assistant] The surprising resilience of household formations among the mil lennial population suggests that their generation will continue to lead the growth of housing demand. The headship rates of adults under age 35 are still historically low and therefore have room to increase. In addition, the older millennials are moving into the 35-44 year old age group, a stage of life when headship rates are consis tently higher. While slowdowns in national birth and death rates are becoming increasingly evident, higher household formation rates among the millennial generation will likely offset those drags on household growth in the near term.