Study: Warning signs and wild cards

The State of the Nation’s Housing Report, released annually by the Harvard Joint Center for Housing Studies, put a positive spin on last spring’s bump in single-family starts, fueled by the federal home buyer tax credit, low interest rates and lower home prices. But production did not keep pace throughout the year, ending 2009 on a historically low statistic: Fewer homes were started in 2009 than in any other year since World War II.

Single-family home starts fell 28% from the year before, dipping below the 500,000 marker, the lowest since record-keeping began in 1959.

Things were worse for multi-family builders, who watched starts plummet 62% to 109,000 units in 2008, also the lowest on record.

Despite these production cuts, excess housing inventory continued to flood the market, and rental vacancies remained high. The number of individual renters increased by 800,000 last year, according to the report, yet the national rental vacancy rate rose to a new high of 10.6%. Five metropolitan areas -- Memphis, Orlando, Dayton, Richmond and Phoenix -- posted rates above 18%.

“If history is a guide, what happens with jobs will matter the most to the strength of the housing rebound,” said Eric Belsky, executive director of the Joint Center for Housing Studies. “Right now, economists expect the unemployment rate to stay high, but if employment growth surprises on the upside or downside, housing numbers could too.”

Just this week, Belsky was named managing director of the agency, effective July 1. He will replace Nicolas Retsinas, who has led the Joint Center since 1998 and will continue to be affiliated as director emeritus.

Even if the recovery in sales and residential construction flourishes, the report warns, the adverse consequences of the recession and the financial crisis will linger. An estimated one in seven homeowners have homes worth less than what they owe on their mortgages, and nearly 5 million need their home prices to rebound by 25% before they are back above water. In addition, it will take time to work through all the homes in foreclosure.

Looking at future growth, the Harvard study noted that immigrant and minority households account for 74% of net household growth between 2003 and 2009. These two groups are expected to be strong drivers of demand in housing, both in the rental and first-time buyers markets.