U.S. housing market bouncing back, but not for all, says Harvard report

Surveying the state of the U.S. housing market in 2017, it’s hard to not come away with the impression that there are two markets. One, mostly coastal and urban, is seeing skyrocketing prices, tight inventory, and high demand. The other, also urban but increasingly suburban and rural, faces steep affordability problems, decreasing homeownership, and in extreme cases, a rise in concentrated poverty.

The State of the Nation’s Housing 2017, the annual report from the Joint Center for Housing Studies of Harvard University, does make it clear that the nation’s housing market has, in many ways, bounced back from the massive impact of the Great Recession. Showing signs of health and increasing value, the revitalized market and recent upswing have been welcome news for the millions of homeowners who saw the value of their homes plummet. But along with signs of optimism, there’s still severe challenges to provide enough affordable rental units while offering more Americans a road to homeownership.

The report suggests that, to meet the demand of adequate shelter for all Americans, the country need “a renewed national commitment to expand the range of housing options available for an increasingly diverse society.” Here are some of the highlights of the newly released report.

Back to normal (if you’re not struggling to pay rent)

After years of slowly recovering from the Great Recession, the U.S. housing market has finally regained a measure of normalcy. Home prices rose 5.6 percent nationally in 2016, helping more homeowners get out from underwater mortgages. The shift has been significant: at the peak of the problem in 2011, 12.1 million American homeowners were underwater, whereas just 3.2 million fit that description at the end of 2016.

But recent gains haven’t been equally distributed. Data shows homeowners in hard-hit cities such as Las Vegas are still struggling, and low-income areas, especially in the South and Midwest, haven’t seen the same increases in value as high income coastal markets (which have seen valuations rise by more than 40 percent since 2000).

If you’re a low-income renter, you’re likely straining and struggling every month to pay your landlord. While the number of cost-burdened (households paying more than 30 percent of income for rent) and severely cost-burdened (households paying more than 50 percent of income for rent) Americans shrank slightly in 2015, falling to 38.9 million and 18.8 million, respectively, those are still significant populations.

Currently, 70.3 percent of the lowest-income households face severe housing burdens. Defined as those working full-time, year-round at the federal minimum wage, this group faces severe challenges at a time when low-income housing options are scarce. In certain markets, it’s particularly difficult: In metros such as Cape Coral, Florida, and Las Vegas, nearly nine out of 10 of the lowest-income renters are severely burdened.

Homeownership stratification

As many millennials and middle-class families can attest to, the path to homeownership is increasingly challenging, especially in booming urban markets. Consider the wide gulf in average prices: Home values now average $575,000 in the 10 fastest-growing metro markets, which is more than four times the $135,000 average in the 10 areas with the lowest appreciation rates. On average, 45 percent of renters in metro areas can afford monthly payments on a median-priced home in their market, but that shares drops to less than 10 percent in the high-cost markets in California, the Pacific Northwest, Florida, and the Northeast.

Despite the incredible price pressure, homeownership seems to have bottomed out. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent, the same rate recorded a year prior. With the number of homeowner households growing by 280,000 over 2016, the strongest showing in a decade, it seems like purchasing is also leveling out. For comparison, the country added 600,000 renters last year.

The JCHS predicts that, if homeownership rates remain steady between 2015 and 2015, the U.S. could see 8.9 million new homeowner households, as well as 4.7 million new renter households.

Building bust: Construction is falling behind

The rapid rise in prices in high-value markets has been fueled by tighter inventory and higher demand. Last year, 1.7 million units were added nationwide, a 5.6 increase from 2015. It’s the seventh straight year of gains, which sounds healthy. But the U.S. has added less new housing over the last decade than any time since the ’70s. This lack of growth across the board has left the gross vacancy rate at its lowest point since 2000.

That’s part of the reason why homes are sold quicker than ever in many markets, more Americans are renting, and mobility has decreased. How tight is supply? The typical new home was on the market for 3.3 months in 2016, well below the typical 5.1 month average.

What’s worrisome is that these conditions are even worse at the less expensive end of the market. Fewer starter homes are being built or under construction. From 2004 to 2015, the number of starter homes dropped from 500,000 units to just 136,000. That’s pushing more people into the rental market, which in turn is putting upward pressure on rents and lowering vacancies. The rental vacancy rate fell to just 6.9 percent, the lowest rate in the nation for more than three decades.

What’s the holdup? The report blames labor shortages, the result of a drop in the construction workforce post-housing bust, and the lower number of young workers entering these professions. Regulatory and stricter financing requirements have also limited the supply of land available for profitable single- and multifamily housing construction.

Racial diversity, and disparities, in housing

There have been gains in homeownership among the Asian (55.5 percent) and Hispanic (46 percent) populations, both of which have increased 5 percent over the last decade. Population growth in these groups means Asians and Hispanics accounted for one in five home purchases in 2015, compared to one in seven in 2001, and that’s forecast to continue to grow. Between 2015 and 2025, the report projects the U.S. will add 13.6 million households. Minorities will drive almost three-quarters of these gains, with Hispanics alone accounting for a third.

At the same time, the black homeownership rate has fallen to 42.2 percent, below the 1994 level. With white rates increasing to 71.9 percent, the black-white homeownership gap has reached its largest disparity since World War II.

Income segregation is increasing

Perhaps a predictable side effect of divergent prices and the affordability crises in the U.S. housing market is a marked increase in concentrated poverty. Between 2000 and 2015, the share of poor Americans living in high-poverty neighborhoods rose from 43 to 54 percent, and the number of neighborhoods defined as high-poverty skyrocketed from 13,400 to 21,300. While the growth of these high-poverty areas is concentrated in cities, it has increasingly spread to the suburban fringe and even rural areas.

This segregation is a huge problem; the number of Americans living in high-poverty neighborhoods has doubled from 2 million in 1970 to 4 million in 2010, presenting significant challenges for health, education, and upward mobility.