Home building and home sales showed signs of stabilization in the spring, but real home prices continued to fall and foreclosures mount in most areas in the first quarter of 2009, according to a study released by the Joint Center for Housing Studies of Harvard University.
Even though present housing challenges are legion — including still soaring foreclosures, millions of homeowners stuck in homes worth less than the amount they owe on their mortgage, and falling rental property values — the State of the Nation’s Housing report concludes that the demographic moorings of future demand remain strong. The largest generation in American history will be reaching young adulthood in record numbers over the next decade.
As a result, even under a set of household projections that assume annual immigration falls some 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 to 2020 should still rival the solid performance in the 1995 to 2005 period. Even if immigration slows considerably, minorities will still account for about three-quarters of household growth.
“With the echo baby boom driving demand for starter homes and apartments and the baby boom powering demand for homes suited to older Americans,” explains Mohsen Mostafavi, Dean of the Harvard University Graduate School of Design, “the design professions will be called upon to deploy new technologies and designs to meet the aesthetic tastes and functional needs of a new, more diverse younger generation on the one hand and a generation in need of home modifications to help them age more safely and healthfully in place on the other.”
Looking beyond the current turmoil, the report underscores the potential to reduce domestic energy consumption by making the existing housing stock more energy-efficient and creating dynamic mixed-use communities. Bringing the efficiency of the existing housing stock up to that of homes built since 2000 could save as much as 20 percent of residential energy consumption and more compact urban development could cut vehicle miles traveled substantially. Getting there will be a challenge, cautions the report, because local regulations often discourage compact and mixed use developments. Further incentives may be necessary to get property owners to invest in meaningful energy upgrades.
House price depreciation moderated across the country during the first quarter of 2009, falling at a 2.2 percent annualized pace compared with 12.5 percent rate of decline in the fourth quarter of 2008, according to the first-quarter 2009 update of House Prices in America, the U.S. housing valuation analysis from IHS Global Insight. Nationally, house prices have fallen 10.4 percent below their 2007 peak.
Prices declined in 199 of 330 metropolitan areas in the study, down from 312 areas registering declines in the fourth quarter of 2008.
Areas experiencing the greatest declines continue to be in Florida, California and Nevada — states that experienced the highest levels of overvaluation as the housing bubble expanded — and Michigan, feeling the double whammy of the national recession and the contraction in the U.S. auto industry, according to IHS Global Insight. Fifty-seven metro areas had declines greater than 25 percent from their peaks and 134 had declines greater than 10 percent. However, nine metro areas — five of them in California — and the rest in Florida, Arizona and Nevada have seen prices decline by more than 50 percent from their peaks, the update says.
Strong Activity in Lower Price Ranges
Existing-home sales rose in April with strong buyer activity in lower price ranges, according to the National Association of Realtors.
Existing-home sales — including single-family, townhomes, condominiums and co-ops — increased 2.9 percent to a seasonally adjusted annual rate1 of 4.68 million units in April from a downwardly revised pace of 4.55 million units in March, but were 3.5 percent below the 4.85 million-unit level in April 2008.
Lawrence Yun, NAR chief economist, said first-time buyers continue to influence the market but there also is a seasonal rise of repeat buyers. “Most of the sales are taking place in lower price ranges and activity is beginning to pick up in the mid-price ranges, but high-end home sales remain sluggish,” he said.
“Because foreclosed properties will likely be released into the market over the rest of year, it is critical that distressed homes be quickly cleared from the market,” Yun said.
Housing StartsGains Posted in May
Nationwide housing starts rebounded in May from record lows in the previous month, posting a 17.2 percent gain to a seasonally adjusted annual rate of 532,000 units, according to U.S. Commerce Department figures. While driven largely by a double-digit gain in the volatile multifamily sector, the uptick also reflected a substantial gain on the single-family side and applied consistently to all regions of the country.
“Having drawn down standing inventories to very thin levels over the past year, some home builders are now carefully replenishing their supplies in response to demand from smart buyers who are taking advantage of low interest rates and prices,” said Joe Robson, chairman of the National Association of Home Builders (NAHB) and a home builder from Tulsa, Okla.