WASHINGTON – U.S. Housing and Urban Development Secretary Shaun Donovan today announced HUD will speed federal disaster assistance to the State of Colorado and provide support to homeowners and low-income renters forced from their homes due to the ongoing High Park and Waldo Canyon wildfires this month.

Harvard’s State of Housing Report Says Home Construction Now Adding to GDP

Steadier job growth and improving
consumer confidence are now boosting home sales and home prices may finally
find a bottom this year according to the latest State of the Nation’s Housing report released this morning.  The report, produced by the Joint Center for
Housing Studies of Harvard University, says further that stronger home sales
should pave the way for a pick-up in single-family construction over the rest
of 2012.

Conditions, however, will keep this
recovery “subdued.”  The backlog of
nearly 2 million loans in foreclosure means that distressed sales will remain
elevated and will keep a downward pressure on prices and another 11.1 million
homeowners are underwater on their mortgages, dampening both sales of new homes
and investment in existing units.  While
vacancies have been declining the report notes, they still remain well above
normal, holding down demand for new construction in many markets.

What the for-sale market needs most, the
authors say is a sustained increase in employment.  This might in turn bring household formation
back to normal levels.  The depressed
pace of homebuilding has been a major factor in hiring and pulled down growth
in the gross domestic product (GDP) from 2006 to 2010.  Since the beginning of 2011, however, both home
construction and home improvement spending have made a positive contribution to
GDP in four out of five quarters.

Another bright spot is the rental market;
the number of renters surged by 5.1 million over the decade of the 2000s, the
largest decade-long increase in the postwar era.  This reflects not only growth in those
populations which are historically prone to rent – the young, minority, and low
income households, but foreclosures have driven others into the rental market.

Still the rental market has not fully
benefited from the large echo-boom generation because the recession has forced
a lot of young people to put off leaving home which usually means a move into
rental housing.  Once the economy
improves the echo-boomers should give the market a significant lift.

The rising demand for rentals has
sparked rent increases in many parts of the country; 38 of the 64 markets
tracked by MPF research had rent increases that outstripped inflation and all
but one of the remainder (Las Vegas) had at least a nominal increase in
2011.  Even in some cities hard hit by
foreclosures and the economy in general (Detroit, Cleveland) rents are rising.

The increase in rents has, in turn,
helped to stabilize the multifamily property market where prices are were
reported up by 10 percent in the fourth quarter of 2011 from one year earlier
and multifamily construction starts more than doubled from its trough to a
225,000 unit annual rate, providing a welcome boost to construction.

Homeownership continues to slide,
dipping to 66.1 percent in 2011 from 66.8 percent a year earlier and 69 percent
at its peak in 2004, but it is still higher than in the period from 1980 into
the early 1990s.  Rates for older
households continue to climb as the population ages, but the homeownership rate
for younger households will probably continue to decline over the next few

The number of new homes added to the
housing stock in the 2002-2011 period was lower than in any other ten year span
since the early 1970s so it is hard to argue that overbuilding is dragging down
the market.  The excess housing supply is
largely a reflection of the slowdown in housing growth which resulted from the
decline in the rate at which younger people are forming households as noted above
and also because of a sharp drop in immigration.  But over the longer run, the growth and aging
of the current population should support the addition of about 1.0 million new
households per year for the next ten years. 
Immigration remains an unknown in this calculation, but even assuming
net inflows are half what was predicted by the U.S. Census in 2008, household
growth should average 1.18 million per year in 2010-2020.

The recession took a toll on household
income but did little to lessen the burden of housing costs.  Between 2007 and 2010 the number of
households paying more than half of their income for housing rose by 2.3
million to 20.2 million.  While renters
accounted for the vast majority of the increase, the number of severely
cost-burdened owners also rose more than 350,000 as many households took on
expensive mortgages they were later unable to refinance.  In addition, this recent increase is on top
of an increase in cost burdened households of 4.1 million in 2001-2007.

These cost burdened families face a big challenge.  Among families with children in the bottom
expenditure quartile of income and with the most severe housing cost burden,
only about three-fifths of the amount is spent on food, half as much on
clothes, and two-fifth on healthcare as is spent by families living in
affordable housing.

The Joint Center said there are few
prospects for a meaningful reduction in this cost burden
.  Funding for the federal Housing Choice Voucher
Program has increased only modestly since the recession and the only
significant growth in subsidized rental housing is through the Low Income
Housing Tax Credit which continues to add about 100,000 affordable units each
year.  If the current calls for reducing
domestic spending are realized “the nation would move even further away from
its longstanding goal of ensuring decent, affordable housing for all

On the road ahead, with moderate gains
in multifamily and single family construction and improving sales of existing
homes, housing should be a stronger contributor to economic growth than it has been
in years
.  The rental market is back on
track, but the owner occupied market still faces the same pressures it has for
years; distressed properties which hold down prices and owners who are unable
to sell because they are underwater. 

Actions such as changes in the Home
Affordable Modification Program, the servicing settlement, and more rapid
disposition of properties where homeownership cannot be maintained are helping
the market.  However, the greatest
potential for recovery of the for-sale market is its historic
affordability.  The dive in home prices
and record low mortgages rates make homebuying more attractive than it has been
in years but the limited availability of financing that meets the needs of many
borrowers, strict underwriting guidelines, and rising fees are inhibiting
sales. “With key mortgage lending regulations still undefined, it remains to be
seen to what extent and under what terms lenders will make credit available to
lower income and lower-wealth borrowers.”

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Case-Shiller Home Prices Set New Post-Crisis Lows

Three measures of home prices issued monthly by S&P/Cash-Shiller declined yet again in March.  The data released today showed that the national composite, the 10-City and 20-City housing price indices ended the first quarter of 2012 at new post-crisis lows.

The national composite fell by 2.0 percent from the fourth quarter of 2011 and was down 1.9 percent compared to the first quarter of 2011.  While the changes from a month earlier were minimal (less than 0.1 percent) the 10-city was down 2.8 percent from a year earlier and the 20-City lost 2.6 percent.

At a press conference preceding the release, David M. Blitzer, Chairman of the S&P Index Committee said that flat monthly returns in March did indicate price stability and could be an indication of future gains.

Robert Shiller, Professor of Economics, Yale University, said that the housing patterns we are seeing have lasted a long time.  There are indications that we may be breaking out of the flat pricing trend, but previous attempts to do this have fizzled. 

Karl Case, Professor of Economics Emeritus at Wellesley College, said we don’t have a lot of knowledge about how bubbles unwind but the first positive indicators appear to be volume data such as existing home prices, new home sales, housing starts, and affordability.  These have all been up in recent months, but are still not great relative to history.  Housing starts, in fact are still below what was a previous 30 year low.

Case said other positives to look for are declining inventories, and distressed properties, improving demographics especially housing starts, and low vacancies.  Countervailing forces would be tight credit, the shadow inventory, the overall economy and the wild card of the economy in Europe. 

Another factor which could negatively impact housing is the final outcome of current discussions about risk-based prices.  Case said that if the government divorces itself from the risk, interest rates could rise by as much as 300 basis points.

As regards demographics, Case said one key is household formation which is needed to absorb increases in housing stock.  While household formation has been down, affected by falling immigration, the age distribution, and doubling up in housing, new census data shows that in the first quarter household formation rose by one million.  However, during the same period rental households increased by 1.5 million which means that owner occupied households are disappearing; that homeowners are becoming renters at a rapid pace. 

Returning to the Indices, Blitzer said that while there have been improvements in some regions, housing prices have not turned.  “This month’s report saw all three composites and five cities hit new lows.  However, with last month’s report nine cities hit new lows.  Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.”

Only three cities, Atlanta, Chicago, and Detroit saw annual rates of change grow worse in March.  The other 17 cities and both composites improved the annual rate of change from February.  In seven cities, Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis, and Phoenix, the annual rates of change are now positive.

As of the first quarter of 2012, average home prices across the U.S. are back at their mid-2001 levels and the 10 and 20-City composites have returned to levels in late 2001 and early 2003 respectively.

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Well-Heeled Renters Find Tight Market

It is a boom time for the few developers smart enough or lucky enough to be bringing new luxury rental buildings onto the market now, in one of the tightest spring rental markets in years.

Frank Gehry’s Bid for Hong Kong Renters

Swire Properties has unveiled Frank Gehry’s new Opus Hong Kong — a 12-story apartment complex that is his first major project in Asia.