Photo by Jeff Turner
Harvard University’s Joint Centre for Housing Studies released its annual State of the Nation’s Housing Report showing that the housing market hasn’t played its expected role in the economic recovery.
The study says that only 39% of homebuyers were first-timers in 2010. The homebuyer tax credit program that ended in April 2010 wasn’t very successful. It affected the market strongly but shortly, and led to a sharp decrease. The market share of first-time homebuyers was 33% in December and 29% in January after almost a half-share in April. Potential first-timers are now conservative and are scared away by the decline of the employment rate and home prices.
Mortgages Not Popular
It’s not surprising that the number of borrowers fell significantly in comparison with the years before the crisis. US residents have become more cautious and the underwriting requirements have become tighter. It’s a more sober approach than before the crisis, but excessive skepticism leads to a reduction in the number of homebuyers. This problem needs time and smart measures that will return trust in loans.
Rental housing has strengthened over the past year and is likely to lead a housing recovery, says the report. Both the number of renters who have postponed buying and the number of owners who have gone back to renting have increased. As home prices continue to fall, renters are waiting for prices to bottom out. Renting houses helps the housing market less than buying homes, but it also has some of the same advantages — like supporting construction of rental houses or giving regular income to tenants so that they’re able to pay their debts. With low employment and reduced incomes, we expect an increase of low-income renters, although a Fannie Mae survey shows that 87% of the overall US population agreed that renting is not as convenient as owning a house.
The study revealed that millions of homeowners now have mortgages that are larger than the value of their homes. The Lender Processing Services (LPS) reported that about two million home loans were at least 90 days unpaid. The number of completions of new single-family homes reached a level unseen since the Second World War. Prices are still falling, despite the lack of new supply. During the first quarter of this year, 66.4% of the US population lived in their homes — which is a decline of 0.5% from the third quarter of 2010.
Smaller Houses to be “In”
US residents are now in a difficult situation. Some of them can’t afford to buy a house, while others are afraid of buying or taking a loan. They make temporary decisions and rent houses, waiting for better housing conditions. Modest housing recovery and government measures will sooner or later support their demand. It should be aimed at the majority — those who aren’t looking for big residences. Strict mortgage requirements don’t provide many opportunities for spending big money. Moreover, the aging baby-boomer generation (born in 1946-1965) will increase home sales by older people who want to move into smaller houses. Smaller houses will be the first to be labelled as ‘SOLD.’ However, we should expect a modest recovery — not miracles.