Each year, the Joint Center for Housing Studies of Harvard University compiles statistics and expert insights to provide a birds-eye view of the housing market. The report is aptly (if not creatively) named “The State of the Nation’s Housing.”
The report is designed to help leaders “in government, business, and the civic sectors make decisions that effectively address the needs of cities and communities.”
This year’s 40-page Harvard report offers the first look at the effects of the COVID-19 pandemic on housing and homeownership, and gives us a sense of what’s to come in post-pandemic life.
Here are 5 takeaways from Harvard’s “The State of the Nation’s Housing 2021.”
1) The millennials are coming
Millennials — roughly defined as people born between 1985-1998 — are now the largest generation in the U.S. Older millennials are entering the prime homebuying age range of 35-44, and they’re beginning to wield more power in the market. In fact, they make up 37% of homebuyers — the largest demographic in the homebuying market, according to the National Association of REALTORS® Research Group.
From 2016-2019, buyers under 35 years old — largely millennials — accounted for 250,000 households annually, and the pandemic did little to slow them down, the Harvard researchers found.
The Harvard report showed that in the first quarter of 2021, the total number of households was up 1.5 million year-over-year. This is due in large part to more millennials become heads of households, according to the Harvard report.
2) Housing supply is limited and unprepared
Low housing inventory has been a main storyline of 2021. Inventory shrank by 30% from March 2020 to March 2021, leaving a two-month supply of 1.05 million homes.
Housing supply measures the number of months it would take to sell all the available houses on the market, if no more houses became available. A six-month supply of homes is considered a balanced inventory.
But while low inventory grabs headlines, the state of existing housing is perhaps the bigger story. From 2007 to 2019, the median age of housing stock increased from 34 years to 41. A third of homes in 2017 were in need of serious repair, with a total estimated cost of $127 billion.
The existing stock is also insufficient to meet the changing needs of homebuyers, such as the massive wave of baby boomers who will need housing designed to accommodate limited mobility. The Harvard report states that, “within the next two decades, the number of households headed by people age 75 and over is projected to double from 14 million to 28 million.”
Meanwhile, just 3.5 percent of U.S. housing is adequately set up for limited mobility living.
The changing climate poses another challenge to existing housing stock, according to the Harvard researchers. In 2020, there were 22 unique billion-dollar disasters, shattering the previous record of 16 in 2011 and 2017. The report also noted that the risk of flooding is substantial for more than 20 million properties.
3) New housing is on the way
While housing inventory is currently in short supply, fresh stock is coming in three forms.
First, single-family housing starts averaged 1.16 million units from August 2020 through March 2021. That’s a fast pace considering housing starts rarely reached one million in the past 13 years.
Multifamily starts hit an annual rate of 429,000 units in the first quarter of 2021. That’s a hefty increase from 342,000 in the previous quarter. If the annual multifamily starts rate stays above 400,000 all year, it will be the first time that has happened since 1987.
Finally, Harvard predicts that more existing homeowners will sell their homes as the nation and economy continue to recover from the pandemic. This, in addition to surging single-family and multifamily housing starts, should provide relief to an inventory-squeezed market.
Home prices will likely continue to rise, however, until these three sources of inventory catch up.
4) The racial housing gap persists
In the first quarter of 2021, the Black-white homeownership gap was 28.1%, which is down from a record high of 30.8% in 2019, but still wider than the 27% average that held throughout the 1980s and 1990s. The researchers cited income and net wealth disparities among Black and white homebuyers as key reasons for the gap.
In 2019, the median net wealth of Black renters was $1,830 compared to $6,000 for Hispanic renters, and $8,300 for white renters. The median household income for white renters was $45,000 in 2019, and the median income for Hispanic renters was $42,000. Black renters, meanwhile, had a median household income of $32,100 — 40% less than the median for white renters. Those constraints leave little room for Black renters to save up for a down payment on a home.
Another factor was the availability of family assistance. The report found that “white homebuyers are four times more likely to receive help from parents for down payment on a house.”
The Joint Center researchers asserted that an income-based assistance program could prove crucial to closing the homeownership gap.
“A $15,000 income-targeted assistance program could help as many as 1.0 million Black renters and 470,000 Hispanic renters buy homes,” the report stated. “When coupled with homebuyer education and counseling to overcome information and credit barriers, this support has the potential to reduce the Black-white homeownership gap by 12 percentage points and the Hispanic-white gap by 4 percentage points.”
5) Renting is going to get even messier
Renters were already having a tough time in 2019. Forty-six percent paid more than 30 percent of their income on housing, and 24 percent paid more than half of their income on housing. Then, from March 2020 to March 2021, more than half of all renter households lost income due to the economic fallout of the COVID-19 pandemic.
Seventeen percent of renters were behind on rent in early 2021, and rent relief is set to expire in July. Rents are also increasing back to pre-pandemic levels. This could make it more difficult for renters to not only stay in their homes but to save enough money for a down payment to buy their own properties and escape rising rental prices.
Turning problems into solutions
Harvard’s State of the Nation’s Housing report is not overly optimistic about the housing market. But it does lay out a roadmap for overcoming current and future housing challenges. Assistance programs, targeted efforts at increasing inventory, and shoring up existing housing supply could lead to more widespread homeownership opportunities and a more balanced market.