Whither housing in 2011? While the year began with optimism from some quarters, sales activity in the first half of the year continues to show only anemic growth, and home prices are either falling or stalling across most of the country. A report from Harvard University’s Joint Center for Housing Studies looks at the state of the nation’s housing in 2011, and outlines the convergence of factors that are hindering housing’s recovery.
It comes as no surprise that the report’s summation on the state of housing is a mixed-bag of confidence issues, real financial difficulties, and demographic challenges. Potential homebuyers are either locked-out of the housing market due to financing difficulties, or are waiting for prices to hit a definitive bottom. Also clouding housing’s future are ongoing policy discussions in Washington D.C., where reform of the financial sector and the mortgage markets is underway, the impact of which upon lending—and by extension home prices—is unclear.
The report cites the following factors (among others) as some of the main impediments to housing recovery:
- Unemployment. With official unemployment still lingering above 9 percent (and rising), employment uncertainties continue to keep nervous buyers on the sidelines. First-time homebuyers, in particular, have been spooked by the free-fall in home prices and drastic cuts in the job market, extending their tenure of rentership despite their ability or willingness to purchase.
- Ongoing foreclosures. Foreclosures continue to accumulate, with the crisis “especially acute in pockets across the country,” according to the report, which cites data from Lender Processing Services that over 4 million households are currently at some stage within the foreclosure process. Paired with falling homeownership rates, it may take years to work through this onslaught of excess inventory, deflating home prices along the way.
- Tight lending standards. For those ready and able to buy, continued difficulties securing financing is strapping recovery and killing deals. Higher downpayment requirements (a heavy blow for many first-time homebuyers) and higher credit score cutoffs are reducing the pool of eligible buyers, and straining already weak consumer demand.
- Low household formation. The “Echo Boomers” (also called Generation Y, or Millenials) are now entering their twenties, and represent the largest generation in American history. Yet household formation rates are sluggish at best, and this generation’s role in the housing recovery seems slow to materialize given their difficulties with low-employment rates among recent college graduates. Growth through immigration, too, is lingering at low rates, further stultifying housing demand.