In its annual "State of the Nation's Housing" report, the Joint Center for Housing Studies at Harvard University suggested that participation in the housing market from the segment of the population age 18 to 34 is the key to a robust housing recovery. The report concluded that the United States housing recovery should regain its footing but also faces a number of substantial challenges.
"The housing recovery is following the path of the broader economy," said Chris Herbert, research director at the Joint Center for Housing Studies. "As long as the economy remains on the path of slow, but steady improvement, housing should follow suit."
The report predicts that, despite the challenges, the demographic trends will induce greater participation. At some level at least, it's a numbers game because of the increasing volume of adults coming of age. The number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing, the report predicts.
For now, tight credit, elevated unemployment, and mounting student loan debt among young Americans are curbing growth and keeping Millennials and other first-time homebuyers out of the market. Young Americans, feeling the burden of record levels of student loan debt and falling incomes, continue to live with their parents in greater numbers.
"Ultimately, the large millennial generation will make their presence felt in the owner-occupied market," said Daniel McCue, research manager of the Joint Center, "just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutive year in 2013."
Still, looming doubts about the economic recovery remain. On Wednesday, the Bureau of Economic Analysis released its final estimate of real gross domestic product for the first quarter of 2014. The release showed output in the U.S. declining at an annual rate of 2.9 percent. The first quarter decline stands in contrast with the fourth quarter of 2013, when real GDP grew at a 2.6 percent rate. The decline represents the greatest fall in GDP since 2009.
Whether the drop in GDP represents a temporary setback or a more dire economic situation remains to be seen. Preliminary second-quarter data shows that economic output has improved in the second quarter as warmer weather helped release some pent-up demand.
The report also highlights the ongoing affordability challenge in the greater housing market, which is a drag on the entire population but especially tasks Millennials as they attempt to gain a foothold in new industries, often at entry level wages. Cost burdens remain near record levels and over 35 percent of Americans spend more than 30 percent of their income for housing.
The report concludes that potential GSE reform, federal subsidies, and overall economic growth will be major contributing factors to getting the generation out of their parent's basement and give them better access to a thriving housing market.