Harvard Study Shows Slow Return

Foreclosure CrisisThe worst housing depression since at least the Great Depression has a long way to go before improving, despite better home sales, according to the annual Joint Center for Housing Studies report of Harvard University. With mortgage interest rates heading higher and the economy contracting a sustained recovery faces stiff opposition.

Home equity fell by $2.5 trillion in 2008 and is now down $5.9 trillion from 2005 levels adjusted for inflation, Harvard researchers say.

“Although there are some signs of improvement or at least steadiness in new construction and sales housing starts stand near sixty plus year lows,” said Nicolas Retsinas, Director of the Joint Harvard Center. “Any life in home sales is coming from distressed foreclosure sales, temporary first-time buyer tax credits and low interest rates that moved higher in recent weeks.”

The study also found that demand for housing has weakened with increasing unemployment, housing deflation and higher credit standards required by lenders. Household growth has also slowed with lower immigration.

“The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery,” according to Eric S. Belsky, Executive Director of the Joint Center. “For now markets remain under considerable stress.”

With unemployment rates sharply higher among minorities, minority households are taking the hardest hit in the housing bust, the study found and are more likely to spend more than half of their incomes on housing. Also, higher shares of minorities live in neighborhoods with elevated foreclosure rates, where house prices are declining the most.

The study also shows that the number of households spending more than half their incomes on housing remains at elevated levels. Before the economy began to shed jobs in 2008 and 2009, the number of households with such severe cost burdens in 2007 stood at 18 million, up from 14 million in 2001.

However, the Harvard research report found that the “demographic moorings” for housing demand remain strong. The largest generation in U.S. history will reach adulthood in record numbers over the next decade. As a result, even under a set of household projections that assume annual immigration falls 40 percent below the average of the first half of this decade to just half of U.S. Census Bureau immigration projections, household growth from 2010-2020 should still rival the performance in the 1995-2005 period. Even if immigration slows considerably, minorities will still account for about three-quarters of household growth.

Beyond the current turmoil, the report underscores the potential to reduce domestic energy consumption by making existing homes more energy efficient and creating additional mixed-use communities. Bringing the efficiency of the existing housing stock up to 2000 energy standards could save as much as 20 percent in energy consumption.