Home Prices, Home Ownership Rate Poised to Climb
The outlook for the housing market is brighter than it’s been in years, both nationally and in the Boston area, according to researchers at the Joint Center for Housing Studies (JCHS) at Harvard University, which released its State of the Nation’s Housing Report earlier this month. Steady growth in home sales in recent months, combined with a sharp decline in the inventory of homes for sale, and continued increases in rents have all helped to stabilize home prices over the past year, and as a result “A floor is beginning to form under home prices,” observed Eric Belsky, managing director of the JCHS.
Meanwhile, pent-up demand for housing continues to build, according to the report. Dampened in recent years by a slowdown in net immigration, the economic recession which deterred many young people from living independently, and the foreclosure crisis that forced many middle-aged adults to rent, new single-family home construction (both permits and starts) is forecast to improve by 15 percent or more in 2012. At the same time, consumer sentiment toward home ownership is on the rise, with nearly 70 percent of respondents to separate surveys conducted by Fannie Mae and the University of Michigan stating that they believe this is a good time buy a home.
This optimism is a reflection of today’s improved housing affordability conditions and the rising cost of rent. In Boston for example, rents rose 7 percent in 2011 and are predicted to climb by a similar amount this year. At present, the median rent in metropolitan Boston is $1,171, according to Harvard researchers, while the typically monthly mortgage payment is $1,269 based on homes sold at the median price and a 20 percent down payment. In many markets across the country, “…monthly mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s,” said Belsky.
The most critical factor to a turnaround in home prices and a sustained housing rebound is a stronger labor market. Sustained job growth is necessary to boost household formation and will provide financial relief to the estimated 11 million homeowners now underwater on their mortgages, thus diminishing the number of distressed properties on the market, the report concludes.