Crimson optimism

No housing market slowdown says Harvard report A new report titled the State of the Nation's Housing 2005 from Harvard University's Joint Center for Housing Studies provides an optimistic view of the US housing market. Key Findings from the report include: STRONG HOUSING MARKET INDICATORS -Single-family starts hit a record 1.6 million units in 2004, while new and existing new home sales grew to nearly 8 million. -Homeownership reached an all-time high of 69 percent in 2004, with households all ages, incomes, races and ethnicities joining in the home buying boom. -The inventory of new homes for sale is near its lowest levels ever. New homes sales would have to fall by more than a third—and stay there for at least a year—to create anywhere near a buyer’s market. -Nearly 18 million homes were added to the nation’s housing stock between 1995 and 2004. Demand for new homes is on track to total as many as 20 million units between now and 2015. HOUSE PRICE TRENDS -Even though the cost of owning a typical home now exceeds the cost of renting a comparable home by 30 percent nationally (and by much more in certain areas), homeownership continues to set new records. -With double-digit real house price inflation in 53 out of 163 of the largest metros and four of nine census divisions, aggregate home equity climbed 10 percent to $9.6 trillion in 2004. -Ratios of house prices to median household incomes are certainly higher than in the past, with more than half of evaluated metros hitting a 25-year high in 2004. -The condominium market is especially hot, with price appreciation nearly three times larger than for single family homes since 2000. DEMOGRAPHIC DRIVERS -Household growth over the next ten years is projected to surpass the more than 12 million new households added in last ten years. -Today fully one in ten household heads is foreign-born. Immigration is expected to account for about onethird of household growth in the decade ahead. -The children of immigrants will be a major contributor to housing demand, as the number of second generation children aged 1-10 grew by 41 percent and of 11-20 year olds by 63 percent. -The sheer size of the baby-boom generation, who held more than $3.5 trillion in aggregate home equity as of 2001, helps assure that these households will keep housing demand going strong. MORTGAGE PRODUCT DIVERSIFICATION -Less than half of all home purchase loans in 2004 were standard 30-year, fixed-rate mortgages. Interest only loans, low and no down payment loans, and adjustable rate mortgages have all gained in market share. -Interest-only loans particularly grew in popularity, going from just a small share of all home purchase loans a few years ago to nearly a third in 2004, as reported by Loan Performance. -Home buyers choosing an adjustable-rate mortgage could be in for payment shock if interest rates take off. Even if the rates to which mortgages are indexed do not go up, borrowers that took out loans with a one year discount will see their payments increase by 0.4-1.5 percentage points over the course of 2005. AFFORDABILITY CONCERNS -One in three American households spend more than 30 percent of income on housing, and more than one ineight spend upwards of 50 percent. An additional 2.5 million households are not cost burdened but live incrowded or in severely inadequate housing. -Between 2000 and 2003, the number of households spending more than 30 percent of income on housing jumped by nearly 5 million, and those spending over 50 percent of income grew by 2.5 million. -The number of households spending half their income on housing was up 69 percent among renters in the lower-middle income quartile in 2000-3, compared with a lesser but still large 43 percent among owners. No Slowdown in Housing Market Seen, Report Says [Washington Post]

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