Feature

The State of the Nation's Housing 2003

by Harvard University's Joint Center for Housing Studies

Counter Cyclical Role of Housing and the Economy

• In 2001-02, homeowners refinanced a record $2.5 trillion in mortgage debt, up 108 percent from the last refinancing boom in 1998-99.
New residential investment was up $20 billion in 2002 to $462 billion.
• Home equity climbed by about $405 billion in 2001-02, even as household stock portfolios lost $1.4 trillion in value.
• The Federal Reserve estimates that households spend 15 cents for every $1 increase in their housing wealth, but only 3-to-5 cents for every $1 increase in stock wealth.

Housing Fundamentals
• With the addition of 1.1 million owners, the national home ownership rate reached another high of 67.9 percent in 2002.
• Household growth, the primary driver of housing demand, is projected to top 12 million between 2000 and 2010.
• Given projected household growth and demand for replacements, second homes, and vacancies, perhaps 17 million new housing units could be added in this decade—a million more than in the past decade.

Foreign-born and Minority Influences on Housing Markets
• Immigrants are expected to contribute more than one-quarter, and minorities fully two-thirds, to the expected growth in households this decade.
• Minorities are on track to add 7.5 million households between 2000 and 2010, and another 7.8 million between 2010 and 2020.
• Minorities more than offset losses of whites from the nation’s central cities and accounted for 84 percent of household growth in closer-in “urbanized” suburbs in the 1990s.
• Minority households account for nearly 20 percent of new home purchases and 22 percent of existing home purchases.
• Between 1993 and 2001, the number of minority renters rose by 2.7 million, offsetting a loss of 2.1 million white renters.

Impacts of the Recession
• In 2001, 7.3 million homeowners reported spending more than half their income on housing, up from 5.8 million in 1997.
• Foreclosure rates stood at record levels with roughly 400,000-450,000 homeowners in the process of foreclosure at the end of 2002.
• The sub prime share of loans in low-income, predominantly minority communities is up from 2.4 percent of home purchase loans in 1993 to 13.4 percent in 2002, and from 6.8 percent of refinance loans in 1993 to 27.5 percent in 2002. This has left some of these communities vulnerable to a rash of foreclosures.
• Median renter incomes fell by 1.8 percent over 2000-02, increasing the share of income a typical renter spent on housing from 25.3 percent in 2000 to 26.7 percent in 2002.

Concerns About a Housing ‘Bubble’
• Over the past 15 years, fully 53 of the 100 largest metro areas have not seen even a single year of nominal home price declines.
• Serious delinquency rates on conventional loans—representing about 85 percent of all mortgages—are well below past peaks and under one-half of one percent.
• Inventories of new homes for sale were lean at the end of the first-quarter of 2003 at just 4.1 months, compared with 6.8 months before the last major housing correction.
• Despite record mortgage debt levels, only about 4 percent of mortgage borrowers had equity of less than 5 percent in 2001. Fully 88 percent had equity of 20 percent or more.

Housing Affordability
• Fully 14.3 million, nearly one in seven, American households spend more than 50 percent of their incomes on housing.
• While home prices and rents have continued to outpace general price inflation, inflation-adjusted incomes of households in the bottom two quintiles have been nearly flat since 1975.
• Working does not eliminate severe housing affordability problems. Despite earning between $17,500 and $50,000 in 2001, 3.2 million households in the lower middle and middle-income quintiles paid more than half their incomes for housing.
• There are no metropolitan areas or non metropolitan counties where a household with one full-time minimum wage earner can afford a modest one-bedroom apartment.
• Only 34 percent of the nation’s 9.9 million most needy renter households—those in the bottom fifth of the income distribution—receive housing assistance.

Wealth, Income and Home Ownership Disparities
• After adjusting for inflation, the mean income of households in the bottom fifth rose by a healthy 11.7 percent during the 1990s, while the mean income of those in the top fifth was up by a much stronger 25.7 percent.
• The financial returns on the education of minorities relative to whites of comparable age still lag—among college-educated males aged 25 to 34, for example, the median income in 2001 for non-Hispanic blacks was $35,000, for Hispanics $34,900, and for non-Hispanic whites $45,600.
Reprinted courtesy of Harvard University’s Joint Center for Housing Studies.

This report serves as an essential resource for both public policy makers and private decision makers in the housing industry. The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. To read the complete report, please visit Harvard's web site.