"The State of the Nation's Housing 2006," one of the most anticipated annual housing reports, has just been released by the Harvard Joint Center for Housing Studies.
The report overall is positive on the housing market -- that "the housing sector continues to benefit from solid job and household growth, recovering rental markets, and strong home price appreciation," and as long as these remain in place, "the current slowdown should be moderate."
Households are expected to accelerate from about 12.6 million over the past ten years, to 14.6 million over the next ten which combined with projected income gains and a "rising tide of wealth" should "lift housing production and investment to new highs." On the strength of this growth alone, housing should reach new all-time records, predicts the Center.
However, affordability will also intensify, as the economy is generating many low-wage jobs and land use restrictions are driving up housing costs. Incomes are rising much faster in the top ranges than in the bottom ranges for homebuyers. From 2001 to 2004, the number of households paying more than half of their incomes for housing shot up by 1.9 million, says the Center, bringing the number of low and middle-income households with severe housing cost burdens to 15.6 million.
Affordable rental housing is disappearing -- between 1993 and 2003, rental units affordable to those earning $16,000 or less shrank by 13 percent, creating a shortfall of 5.4 million units.
Homebuyers increasingly turned away from fixed-rate mortgages to adjustable-rate mortgages and other products to afford their homes. In just two years, the interest-only loan which defers principal payments to lower immediate monthly costs, shot from relative obscurity to 20 percent of the dollar value of all loans and 37 percent of adjustable-rate loans originated in 2005. Payment option loans, those that allow borrowers to make minimum payments while the balance balloons, accounted for nearly 10 percent of 2005's loan originations.
As bad as that sounds, the report says that only three percent of owners had equity less than five percent in their homes, and 87 percent had a 20 percent or higher equity stake in 2004.
Housing gains are continuing even while home sales are softening.
Driving housing will be the ever-dependable baby boomers who will boost markets for senior housing and second homes while their children, along with second-generation Americans and immigrants will buoy demand for starter homes and apartments. This generation will favor rental over for-sale housing, predicts the Center.
