The State of the Nation s Housing Report 2017

The State of the Nation s Housing Report 217 Tennessee Governor s Housing Conference Nashville, Tennessee September 2, 217

The Report s Major Themes National home prices have regained their previous peak, but recovery varies across markets and neighborhoods Lack of inventory a key factor holding homeownership opportunities The national homeownership rate may have found a bottom Rental markets may be cresting at least at the high end Housing cost burdens have eased significantly among owners, but remain near record levels among renters Demographic drivers still point to strong demand over next decade, marked by coming of age of millennials, aging of baby boomers, and growing racial diversity The report, data sets, interactive maps and exhibits available at: www.jchs.harvard.edu 2

National House Prices Have Regained Peak, But Recovery Varies Widely

National Home Prices Now Exceed Their Previous Peak in Nominal Terms, But Not in Real Dollars 2 U.S. National Home Price Index 18 16 14 12 1 2 22 24 26 28 21 212 214 216 Nominal Home Prices Inflation-Adjusted Home Prices Note: Prices are adjusted for inflation using the CPI-U for All Items less shelter. Source: JCHS tabulations of S&P CoreLogic Case-Shiller Home Price Index data. 4

Home Values in Low-Income Neighborhoods Have Been Slow to Recover Share of Neighborhoods Where Nominal Home Values Exceed Previous Peak (Percent) 9 8 7 6 5 4 3 2 1 Total US In Markets Where Metrowide Values Are Above Peak Neighborhood Income Low Moderate High Note: Low-/moderate-/high-income neighborhoods are ZIP codes with median incomes under 8%/8 12%/over 12% of the statewide median income. Source: JCHS tabulations of Zillow median home values and US Census Bureau, 215 American Community Survey 1-Year Estimates. 5

Metro Area Home Prices Have Diverged Widely Since 2 Change in Real Metro Area Home Price, January 2 December 216 (Percent) Over 4. (Up to 177.) 2. 39.9 19.9 Negative (Down to -46.) Note: Prices are adjusted for inflation using the CPI-U for All Items less shelter. Source: JCHS tabulations of CoreLogic Home Price Indices. 6

Metro Area Home Prices Have Diverged Widely Since 2 Change in Real Metro Area Home Price, January 2 December 216 (Percent) Over 4. (Up to 177.) 2. 39.9 19.9 Negative (Down to -46.) Note: Prices are adjusted for inflation using the CPI-U for All Items less shelter. Source: JCHS tabulations of CoreLogic Home Price Indices. 7

Lack of Inventory Key Constraint in both For-Sale and For-Rent Markets

Inventories of Homes for Sale Continue to Shrink 4.5 4. 3.5 3. 2.5 2. 1.5 1..5 Millions of Units Months of Supply 18 16 14 12 1 8 6 4 2. 24 25 26 27 28 29 21 211 212 213 214 215 216 217 Existing Homes for Sale (Left scale) Months of Supply (Right scale) Note: Months of supply measures how long it would take the inventory of homes on the market to sell at the current sales rate. Source: JCHS tabulations of NAR, Existing Home Sales. 9

Especially at the Lower End of the Market 6 Months of Supply 5 4 3 2 1 5 5 75 75 1 1 125 125 15 15 175 175 2 List Price as Percent of Metro Area Median 215 216 Note: Data are three-month trailing averages as of December of each year. Source: CoreLogic. 1

Historically Low Construction Over the Past Decade Has Contributed to Market Tightening 18 16 14 12 1 8 6 4 2 New Units Completed Over Past 1 Years (Millions) Vacancy Rate (Percent) 9 8 7 6 5 4 3 2 1 Total 1-Year Completions (Left scale) Vacancy Rate (Right scale) Notes: The vacancy rate is calculated as the total number of vacant units for-sale, for-rent, and rented or sold but not yet occupied over the total number of units occupied, vacant for-sale or for-rent, and rented or sold but not yet occupied. Source: JCHS tabulations of US Census Bureau, New Residential Construction data and the Housing Vacancy Survey. 11

Construction of Smaller Single-Family Homes Has Been Slow to Recover 8 New Single-Family Homes Completed (Thousands) 7 6 5 4 3 2 1 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 Square Footage Under 1,8 1,8 2,999 3, and Over Source: JCHS tabulations of US Census Bureau, New Residential Construction data.

Homeownership Rate May Be Finding a Bottom

The National Homeownership Rate Fell Again in 216, Although it May Be Finding a Bottom 7 69 68 67 66 65 64 63 62 61 6 Percent Millions 1 95 9 85 8 75 7 65 6 55 5 Homeownership Rate (Left scale) Note: Data are four-quarter rolling averages. Source: JCHS tabulations of Housing Vacancy Surveys. 14

Foreclosure-Related Exits Account for Most of the Decline in Owning Among Older Households 12% Homeownership Rate Decline & Foreclosure Exits by Age Group 1% 8% 6% 4% 2% % 18-25 26-35 36-45 46-55 56-65 66-75 >75 Homeownership Rate Decline, 25-215 Estimated Foreclosure Rate Source: JCHS tabulations of CPS ASEC and CoreLogic data on foreclosure completions. 15

But Rates Have Fallen Well Below Early 199s Rates for All But Oldest Age Groups 1 8 6 4 2-2 -4-6 -8-1 Change in Homeownership Rate Since 199 (Percentage Points) 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 Age of Household Head 25-34 35-44 45 54 55 64 65-74 75 and Over Note: Based on 3-year annual average rates. Source: JCHS tabulations of US Census Bureau, Current Population Surveys.

The Vast Majority of Households Either Own Homes or Expect to in the Future 1 9 8 7 6 5 4 3 2 1 Share of Survey Respondents (Percent) Under 3 3 39 4 49 5 59 6 69 7 and Age Group Over Currently Own Home Expect to Buy a Home Someday Expect to Buy a Home in Next Move Do Not Expect to Buy a Home Source: JCHS tabulations of The Demand Institute, 215 Consumer Housing Survey data.

Falling Incomes Among Young Adults Were an Often Overlooked Factor in Homeownership Decline, But Trends Have Now Reversed 4 38 36 34 32 3 28 26 24 22 2 Median Income Per Capita (Thousands of 215 dollars) 1993 1995 1997 1999 21 23 25 27 29 211 213 215 Age Group 25 34 35 44 Note: Data are for adults age 15 and over. Source: JCHS tabulations of US Census Bureau, Current Population Surveys. 18

Large Shares of Renters Can Afford the Median-Priced Home in Many Parts of the Country, But Not on the Coasts Share of Renters Who Can Afford Median-Priced Home (%) Less than 3 3. - 39.9 4. - 49.9 5. - 59.9 6 or More Notes: Values are in 215 dollars. Monthly payment assumes a 5% down payment on the median-priced existing single-family home with property taxes of 1.25%, property insurance of.25%, and mortgage insurance of.5%. "Affordable" payments cannot exceed 36% of monthly household income (calculated as 1/12 of annual household income) and assumes household can finance down payment and other related home purchase costs. Source: JCHS tabulations of National Association of Realtors and Moody s Analytics Forecasted Single-Family Seasonally Adjusted Quarterly Median Home Price, annualized by DataBuffet; US Census Bureau, 215 American Community Survey 1-Year Estimates and 215 Population Estimates. 19

Tight Lending Standards Limit Mortgage Access for Households with Lower Credit Scores Share of Home Purchase Mortgage Originations (Percent) 1 9 8 7 6 5 4 3 2 1 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 Credit Score Below 62 62 659 66 699 7 739 74 and Higher Note: Data include only conventional first-lien purchase mortgage originations. Source: JCHS tabulations of CoreLogic data. 2

Rental Market May Be Cresting At Least at High End of the Market

Multifamily Construction Has Been at Highest Levels Since Late 198s, But Has Likely Crested 8 7 6 5 4 3 2 1 Multifamily Housing Starts (Thousands) For Rent For Sale Source: JCHS tabulations of US Census Bureau, New Residential Construction data. 22

Rents for New Multifamily Units Are Out of Reach for Most Renter Households Income Distribution of Renter Households Asking Rent of New Multifamily Units 15% 17% 1% 9% 11% 49% 17% 31% 15% 26% Under $35, $35, 49,999 $5, 64,999 $65, 99,999 $9, and Over Under $85 $85 1,249 $1,25 1,649 $1,65 2,249 $2,25 and Over Note: Income category cutoffs align with rent category cutoffs at the 3% of income affordability standard. Sources: US Census Bureau, 215 Survey of Market Absorption and 215 Current Population Survey. 23

At the High-End, Rent Growth is Slowing and Vacancies Rising, While Class C Segment Continues to Tighten Annual Same-Store Rent Change (Percent) Rental Vacancy Rate (Percent) 7.% 1.% 6.% 5.% 8.% 4.% 6.% 3.% 4.% 2.% 1.% 2.%.% 1Q 211 1Q 212 1Q 213 1Q 214 1Q 215 1Q 216 1Q 217.% 1Q 211 1Q 212 1Q 213 1Q 214 1Q 215 1Q 216 1Q 217 Class A Class B Class C Class A Class B Class C Source: JCHS tabulations of MPF Research. 24

Rental Demand Was Up for the 12 th Consecutive Year, Although it May Be Slowing 5 Millions Millions 2.5 45 2. 4 1.5 35 1. 3.5 25. 2 -.5 Annual Change in Renter Households (Right scale) Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 25

Homeowner Affordability Has Improved Significantly, But Remains Near Record Highs for Renters

Renter Cost Burdens Spread at an Unprecedented Pace in the 2s and Have Barely Receded 6 Shares of Cost-Burdened Renter Households (Percent) 5 4 3 2 1 196 197 198 199 2 21 215 Severe Moderate Notes: Moderate (severe) burdens are defined as housing costs of 3-5% (more than 5%) of household income. Households with zero or negative income are assumed to be severely burdened, while renters not paying cash rent are assumed to be unburdened. Sources: JCHS tabulations of US Census Bureau, Decennial Census and American Community Surveys. 27

More Than 11 Million Renter Households Pay at Least Half Their Incomes for Housing Severely Cost-Burdened Households (Millions) 12 11 1 9 8 7 6 5 4 3 2 1 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 Owners Renters Note: Severely cost-burdened households pay more than 5% of income for housing, including utilities. Source: JCHS tabulations of American Community Survey 1-Year Estimates. 28

Sharp Rise in Cost-Burdened in 2s Reflects Long-term Increases in Housing Costs and Declines in Incomes Percent Change in Median Rents and Incomes Since 21 2 15 1 5-5 -1-15 -2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 Median Renter Income [Left Scale] Median Renter Costs [Left Scale] Source: JCHS tabulations of US Census Bureau, American Community Surveys

Affordability Challenges Among Moderate Income Renters is Most Pronounced in High- Cost Metros 1 9 8 7 6 5 4 3 2 1 Share of Cost-Burdened Renter Households (Percent) Less than $15, $15, 29,999 $3, $44,999 $45, 74,999 $75, and Over All Renter Households US Total Household Income Top Ten High-Cost Metros Notes: Cost burdens are defined as housing costs of more than 3% of household income. The top ten high-cost metros are based on metro rankings by median monthly gross rents. Source: JCHS tabulations of the American Community Survey, 213. 3

Affordability Challenges Among Moderate Income Renters is Most Pronounced in High- Cost Metros 1 9 8 7 6 5 4 3 2 1 Share of Cost-Burdened Renter Households (Percent) Less than $15, $15, 29,999 $3, $44,999 $45, 74,999 $75, and Over All Renter Households Household Income US Total Memphis Knoxville Nashville Notes: Cost burdens are defined as housing costs of more than 3% of household income. The top ten high-cost metros are based on metro rankings by median monthly gross rents. Source: JCHS tabulations of the American Community Survey, 213. 31

Strong Household Growth Should Buoy Housing Market Over Coming Decade

Steady Increases in the Adult Population Are Helping to Lift Household Growth from Post-Recession Lows 3. Millions 2.5 2. 1.5 1..5. Three-Year Average Change in Population Age 25 and Over One-Year Change in Households Three-Year Average Change in Households Note: Three-year changes are trailing averages, adjusting for the break in the household series in 23. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey and Population Estimates. 33

Household Growth Will Be Strong Over Coming Decade, With Minorities Driving Most of the Growth Projected Household Growth (Millions) 14 215 225 14 225 235 12 12 1 1 8 8 6 6 4 4 2 2 White Minority Total Race/Ethnicity Black Hispanic Asian/Other White Minority Total Notes: White, black, and Asian/other households are non-hispanic. Hispanics may be of any race. Asian/other includes all other households. Source: JCHS 216 Household Projections. 34

By 235, One Out of Every Three Households Will Be Age 65 and Over 18 16 14 12 1 8 6 4 2 Households (Millions) Under 25 25 29 3 34 35 39 4 44 45 49 5 54 55 59 6 64 65 69 7 74 75 79 8 and Age Group Over 215 225 235 Source: JCHS 216 Household Projections. 35