“The State of the Nation’s Housing: 2001,” released last month by Harvard’s Joint Center for Housing Studies, found that despite the weakening economy, home sales entered the year at near record levels; prices and rents continued to climb; and residential fixed investment in 2000 was off a mere half percent.
“Ordinarily, sharp drops in housing production and slowing home sales take the wind out the economy ahead of other sectors,” said Nicolas P. Retsinas, director of the Joint Center, “but low interest rates and strong demand have helped housing markets stay strong.”
Interest rates also triggered a wave of mortgage refinancing that put cash in the hands of consumers and helped offset other drags on consumer spending. People are leveraging their homes more than ever before; existing homeowners are taking advantage of the mortgage interest rates and rising home values to finance other consumption, while homebuyers are capitalizing on lower down-payment requirements. The remarkable growth in house values notwithstanding, home equity as a share of home value has fallen 10 percentage points to postwar lows.
Rising home prices have eroded affordability for many homebuyers. Last year, mortgage costs for the typical homebuyer rose so much faster than income that the rising cost alone absorbed most of the income gain. Rent exceeded inflation for the fourth year in a row. Even though renters’ income growth outstripped rent gains in the latter part of the 1990s, the incidence of housing affordability problems barely eased for low-income households and started to increase among moderate-income households. “More and more, it takes two incomes to afford housing for low- and moderate-income families,” explains Retsinas. “In fact, there is no state in which full-time minimum wage work is enough to afford, at 30 percent of income, a two-bedroom apartment at the federal fair-market rent.”
The research report was released June 26 at the Ford Foundation headquarters in New York. Principal support for this study was provided by the Ford Foundation and the Policy Advisory Board of the Joint Center for Housing Studies.
The complete text of “The State of the Nation’s Housing: 200” is available at the Harvard Joint Center for Housing Studies’ Web site at http://www.gsd.harvard.edu/jcenter/.