Friday, June 22, 2007

Not Much Good News from Harvard on Housing

Disturbing signs that things will get worse before they get better in the Harvard Joint Center for Housing Studies’ annual report, The State of the Nation’s Housing 2007.
For one thing, home building dropped more than 30% from 2005 peak levels during the fourth quarter of last year, knocking more than a full percentage point of national economic growth in the last half.
The sub-prime crisis will constitute a serious challenge for the entire economy. A large number of consumers will be directly affected, and those consumers unaffected by it may turn more cautious with their disposable dollars as the crisis deepens. Since a recent study by NKBA suggested that about three-quarters of consumers remodeling kitchens and baths are paying all or part of the project cost through home improvement loans, our industry is likely to feel the effects.
Subprime lending made up more than 1 in every 5 housing loans in 2006. More than a quarter-million homeowners entered foreclosure procedures in just the fourth quarter of 2006. Affordability mortgages, with low fixed payments that balloon after the initial two years, made up 32% of all mortgages last year and 38% of all mortgages in 2005. The amount of debt in those mortgages, whose viability is in doubt, could be as high as $540 billion.
Total household debt in America exceeded total personal income during 2006, as it has every year since 2003. All of this means that foreclosure rates are likely to remain high and even climb for the rest of this year and next. And those headlines are liable to make a dent in consumer confidence.
The report includes some good news. Harvard reckons that home improvement climbed 2.8% from 2005 to 2006. Housing makes up 20% of net household wealth, up from 17% when the decade began.
Household growth is expected to accelerate, from 12.6 million new households from 1995-2005 to 14.6 million new households 2005-2015. This is due to the children of baby boomers forming households themselves, baby boomers having increased longevity, and foreign born householders increasing. Some 14% of home buyers in 2005 were foreign-born, and that number is slated to increase, as the immigrant population disperses. This will create new challenges in the way our business is conducted, from design tastes to sales floor languages.
Challenges will remain for the nation as a whole to face. Some 37.3 million households are burdened by the cost of housing. Roughly 2.1 million households live in severely inadequate housing, while Harvard estimates nearly three quarters of a million Americans are homeless on any given night. And even after the recent minimum wage increase is implemented, a household with a single minimum wage earner will be unable to afford to rent a two-bedroom apartment anywhere in the country.

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