Housing Shores Up Fragile Economy
Harvard Releases the 2003 State of the Nation’s Housing Report

Cambridge, MA – The State of the Nation’s Housing: 2003, released today by the Joint Center for Housing Studies of Harvard University, finds that by most measures 2002 was the strongest year for housing on record. When the economy regains momentum and the lingering effects of the recession subside, the report concludes, housing will be well-positioned for another solid decade. “The housing sector continues to undergird a beleaguered economy as investment in home building, remodeling and home sales reached record highs”, explains Nicolas P. Retsinas, director of the Joint Center. “Moreover, household formations buoyed by immigration and enhanced housing demand by wealthier baby boomers coupled with supply constraints augur well for increased housing investment in the decade ahead.” In the near term, the impacts of the weak economy pose risks to housing markets.

This year’s report notes that:

· Cash taken out in the process of refinancing mortgages set records, pumping an estimated $97 billion back into the economy, and going to pay off another $70 billion. In addition, lower monthly mortgage payments on the rest of the refinancing activity injected $13 billion more into the economy. Already in 2003, refinances are on course to rival 2002 levels.

· Diversity increasingly shapes housing markets. Over this decade, minorities are expected to contribute fully two-thirds—and immigrants alone more than one-quarter—to the expected growth in households.

· The number of homeowners spending half their incomes on housing has increased (7.3 million in 2001, up from 5.8 in 1997).

· Expansion of credit since 1993 to homeowners with blemished credit histories has exposed a growing share of borrowers to default risks. The concentration of these subprime loans in low-income, especially minority, neighborhoods, has exposed some neighborhoods to mounting foreclosures.

· Though the percentage of conventional mortgages 90 days past due increased in 2002, the current percentage is under one half of one percent and well below previous peaks.

· Several years of strong home price appreciation have shored up the home equity positions of most homeowners—even those who put little money down when they bought or took cash out during a refinance. In addition, lower interest rates have kept mortgage debt payments down for most homeowners.

· Rental housing markets have softened in some areas and many landlords have begun to offer rent concessions. However, the softness is mostly associated with the weak economy and so should reverse when the economy recovers.

With long-run income growth among lower income households stagnating and housing costs rising, affordability pressures have intensified. “Even households with incomes well above the full-time equivalent of the minimum wage are struggling to find housing that meets their needs, at costs they can afford,” notes Eric S. Belsky, executive director of the Center. “Furthermore, fiscal pressures at all levels of government jeopardize the limited progress the nation has made in relieving the housing cost burdens of the neediest households.”

“This year’s State of the Nation’s Housing highlights the irony of unaffordable housing in the midst of housing affluence,” concludes Retsinas.

Harvard’s Joint Center for Housing Studies is the nation’s leading center for information and research on housing in the United States. Established in 1959, the Joint Center is a collaborative unit affiliated with the Harvard Design School and the Kennedy School of Government. The Director of the Joint Center for Housing Studies is Nicolas P. Retsinas, who was appointed in 1998. The Center’s research and additional information about its programs and activities are available at www.jchs.harvard.edu.

Note: The Joint Center uses current data from the Census Bureau, the American Housing Survey, HMDA, the Federal Reserve, Freddie Mac, the Mortgage Bankers Association of America, the National Association of Realtors, the Bureau of Economic Analysis, and the Bureau of Labor Statistics to develop its findings.