The housing recovery continues to gain momentum, providing a boost to the economy, but the news is still mixed. Homebuyer demand is fueling construction, but millions of homeowners owe more on their home than it is worth and tight lending standards mean that many can't afford to buy a home, according to a report by the Joint Center for Housing Studies of Harvard University.
"Even as historically low interest rates have helped make the monthly cost of owning a home more favorable than any time in the past 40 years, the national homeownership rate fell for the eighth straight year in 2012," Eric S. Belsky, managing director of the center, notes in a press release. The drop in homeownership was especially pronounced for those aged 25 to 54, he adds.
Rental activity rising
Homeownership is not an affordable option for an increasing number of Americans, the report says. More than 20 million households are spending half their income or more on housing, including those in rentals.
More of the people who would have owned a home in the past are becoming renters, including married couples with children, high-income households and white households. Baby boomers are also turning to rentals: The number of renters age 55 to 64 grew 80 percent between 2002 and 2012, compared with 50 percent among all households in that age group.
More challenges for owners, buyers
Although foreclosure activity has fallen since the peak of the housing crisis, more than 1.4 million homes are in foreclosure, according to the report. The number represents 3.6 percent of all mortgages and is more than four times the average of 0.8 percent from 1974 to 1999.
In addition to rising home prices, buyers are facing tight inventory of homes for sale. The report notes that the supply of new homes for sale in 2012 was historically low. Entering 2013, the number of existing homes on the market was 1.8 million, more than 500,000 less than a year earlier and the lowest level since 2001.
A cautionary tale
The good news about rising home prices is that it's moving many homeowners into positive equity. And demand from buyers is putting builders back to work. "With rising home prices helping to revive household balance sheets and expanding residential construction adding to job growth, the housing sector is finally providing a much-needed boost to the economy," Belsky says in the report.
"But long-term vacancies are at elevated levels in a number of places, millions of owners are still struggling to make their mortgage payments, and credit conditions for homebuyers remain extremely tight," he adds. "It will take time for these problems to subside."
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