Household growth has returned to a normal pace, according to the State of the Nation’s Housing report from the Joint Center for Housing Studies of Harvard University. The study found that the economy is “finally back on track” after the weak household growth and sluggish construction recovery following the Recession.
Household growth picked up to 1.2 million a year in 2016–2018, but new construction was still depressed relative to demand, with additions to supply just keeping pace with the number of new households. Homeownership is picking up as well, as the the US homeownership rate edged up in both 2017 and 2018, to 64.4%. According to the study, this translates into a 1.6 million jump in the number of homeowners
Nationally, affordability has picked up, but depending on the market, some potential homeowners may find that the price-to-income ratio is near peak levels. Price-to-income ratios are highest on the West Coast, where many metroes experience DTIs of 6.0 or higher.
Additionally, a rise in interest rates and home prices plus a tightening of credit, on top of the limited supply of entry-level housing, could put homeownership out of reach for many more households.
The rental market, meanwhile, is on solid footing. According to the study, all rents rose at a 3.6% annual rate in early 2019, or twice the pace of overall inflation. Most of the declines were at the single-family rental level, and Harvard’s study notes that even if homeownership rates continue to increase, low vacancy rates and shifts in the existing stock are likely to prevent a significant softening of rental markets.
“In fact, weaker overall rental demand could help to ease conditions at the low end,” the study says. “With most new construction targeting the high end of the market, there has been some potential for excess supply to filter down to lower rent levels.”