Harvard releases the 2007 State of the Nation's Housing report
The U.S. housing market continues to struggle
under a cloud of sharp drops in housing demand and an oversupply of stock, according to this year's State of the Nation's Housing report from the Joint Center for Housing Studies at Harvard University. After years of setting records, housing starts and sales fell in 2006 and are on track to end this year lower. Homebuyers on the margin of qualifying for mortgage loans finally pulled out of the market, despite the availability of creative mortgage products. As buyers left, home sales fell and house price appreciation slowed in some areas and fell in others. Higher home prices and interest rates finally tempered demand, explained Nicolas P. Retsinas, director of the Joint Center for Housing Studies. Many buyers are now waiting on the sidelines hoping prices will fall.
The problems in the housing market put a downward pull to the big lift that housing had given the economy since the 2001 recession. In the latter half of 2006, the drop in home building was so drastic that it shaved more than a full percentage point off national economic growth. Though builders cut back on housing starts, the numbers of vacant homes for sale rose by more than 500,000 from the fourth quarter of 2005 to the fourth quarter of 2006 and continued to rise in the first quarter of 2007.
Still, the nation's largest housing challenge remains housing affordability. "In just one year the number of households spending more than half their income on housing increased a startling 1.2 million to 17 million in 2005," notes Rachel Drew, research analyst. "Even if prices or rents soften for a period of time, the nature of U.S. labor markets, the regulatory restrictions imposed on residential development and the fiscal limits of government assistance to cost-burdened households will make affordability a long-term challenge." Some Americans try to escape these cost burdens by taking longer commutes and incurring higher travel costs, while others double up or live in substandard housing or undesirable neighborhoods. The prospects for a substantial easing of these problems are slim in the near future.