Harvard Housing Study Shows Markets CoolingSeptember 20th, 2023 by Editor
Results of the State of the Nation’s Housing 2023 study, conducted by the Joint Center for Housing Studies (JCHS) of Harvard University, show what many in the homebuilding industry have known for some time yet: declines in the market for home sales, construction and appreciations in home values. Changes are due in part to home prices and rents, which remain higher than they were prior to the COVID-19 pandemic.
To the latter point, Harvard’s study cites Phoenix as an example, where asking prices for rent skyrocketed 25.6% in the first quarter of 2022 and dropped 1.9% in the first quarter of this year. In Tampa, the report states, rent went up 27.6% in 2022 and another 3.4% this year. Housing costs have hit equally high rates, up 37.5% since 2020, driving home costs up from an average of $283,000 before the pandemic to $375,400 at the end of the first quarter of this year.
Overall, home sales prior to the pandemic were strong and remained so through the start of the pandemic, when many buyers were seeking more space or new space further afield. “However, homeownership growth of this magnitude is unlikely to continue in 2023,” was the opinion of JCHS researchers, who cite rising interest rates as a significant factor in the drop of first-time homebuying activity that started in the back half of 2022. Per the report, “median monthly payments then settled to $3,000 by March 2023, as interest rates plateaued at 6.5%,” but in doing so “millions of renter households were nonetheless priced out of homeownership.”
The increasing costs associated with home ownership are exacerbating the racial disparity in homeowners, which had been closing prior to 2019.
“With Black and Hispanic homeownership rates still fully 28.6 and 25.8 percentage points below white homeownership rates, policymakers and practitioners have a long way to go to reduce these disparities,” says the JCHS report. “Equally critical to addressing racial inequities are investments designed to benefit residents of historically underserved communities while avoiding fostering gentrification and displacement. Fair housing planning and enforcement are also needed.”
Further per the report, construction of single-family homes is dropping at a considerable rate, especially compared to multifamily construction, which increased in 2022 and continued strong in March 2023, with 960,000 units in multifamily buildings reportedly under construction. However, report writers cautioned that the multifamily construction sector may not last, considering rental vacancy rates are rising.
Meanwhile, “cost-burdened renters—defined as those spending more than 30% of their income on housing—increased by 1.2 million to a record 21.6 million households,” with more than half of those households “spending more than 50% of their income on housing.” The report notes that the percentage of cost-burdened households had been decreasing prior to the COVID pandemic. That trend reversed between 2019 and 2021, topping out at 49% of renting households, a number the report also notes is not far off the peak (51%) it reached in 2011, following the Great Recession.
The number of cost-burdened homeowners also increased, to 19 million, with not quite half—8.7%—being severely cost-burdened in 2021. The majority of cost-burdened households fall in the lower income brackets but the JCHS reports that the number of cost-burdened households that fall into more middle class brackets is increasing as well.
To all of this, add in shifting populations—some people looking for more space and distance from crowded urban areas, others seeking a different climate—and the report points to the “critical” need for “substantial investment” to improve existing housing supply.