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Strong Housing Demand to Return Following Downturn
The current housing downturn “is shaping up to be the worst in a generation,” Eric Belsky, executive director of the Harvard University Joint Center for Housing Studies, told NAHB’s Spring Construction Forecast Conference in Washington, D.C. on April 24.
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Belsky | But a November 2007 report from the center predicts that the strong underlying demand for housing should produce a healthy resurgence in residential construction once the current cyclical slump has ended.
The difficulty, Belsky said, is in “seeing beyond the pothole to the road ahead.” The view of a return to better times is currently being obscured by “ballooning” vacant units and dropping home equity and homeownership rates. Home owners lost 6.5% of their equity last year, he said, and home prices continue to decline.
The housing boom was rooted in unusually low mortgage interest rates and tight markets where the local entitlement process made it difficult for supply to keep up with demand, he said. The homeownership rate actually peaked in 2004 before the surge in subprime lending, he pointed out, and has eroded because of rising interest rates and the rapid run-up in home prices compared to household income.
Exacerbating the current housing downturn, Belsky said that first-time buyers entered the market at the peak of the cycle when home prices were over-inflated and financed their purchases with subprime mortgages that many are now having difficulty repaying, resulting in high foreclosures.
The wildcard in Harvard’s housing forecast is immigration, he said.
Going forward, the U.S. Census Bureau has predicted a 30% reduction in the annual pace of immigration, which has recently been about 1.2 million annually. Assuming that the recent rate of immigration continued, an estimated 14.5 million new households would be created between 2010 and 2020, he said.
He noted that the Census Bureau has consistently underestimated immigration, and although its assumptions on immigration would reduce net household growth for the 2010-to-2020 period to about 13 million, that number would still exceed the household growth of the late 1990s.
Belsky said that the impact of foreign-born and minority households on housing demand should not be underestimated in the period ahead. These households, along with those headed by persons under 35, have recently seen the largest growth in their homeownership rates and are a growing share of households.
Photos by Morris Semiatin
 Want to Know the Housing Forecast for the Top 100 Metros?
Find out in HousingEconomic.com’s 2008 to 2009 Metro Forecast (free preview).
Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables.
To learn more, visit www.HousingEconomics.com.
 Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.
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