Cambridge, MA, June 16, 2021 – As the U.S. economy continues to recover from the effects of the pandemic, households that weathered the crisis without financial distress are grabbing hold of the limited supply of homes for sale, driving up prices. price and further excluding the less well off buyers resulting from home ownership. At the same time, millions of people who have lost their income are behind on housing payments and on the verge of eviction or foreclosure. According to The State of the Nation’s Housing 2021, a new report from the Harvard Joint Center for Housing Studies (JCHS), a disproportionate share of at-risk households are those with low incomes and people of color. While policymakers have taken bold steps to support consumers and the economy, additional government support will be needed to ensure that all households benefit from the expanding economy.
Home sales at highest level since 2006
Even before the pandemic, household growth in suburbs and smaller metros was on the rise. The pandemic helped accelerate this growth, especially among younger households who were ready to become homeowners and were looking for more space to work remotely. In 2020, sales of existing homes rose 6% and sales of new single-family homes jumped 20%, putting total home sales at their highest level since 2006. The home-buying frenzy escalated. produced despite a historically tight supply; at the end of 2020, months of supply for existing homes fell below two months for the first time, while the median time on market hit a record low of 18 days.
With soaring prices, is a bubble emerging?
The combination of robust demand and limited supply has driven home prices to their fastest pace in more than a decade. The largest price gains were in fast-growing western states, led by a 28% jump in Boise [Idaho] and increases of 22-23% in Austin and Tacoma [Texas and Washington, respectively]. Moreover, house price growth continued to outpace income growth last year, lifting the national price-to-income ratio to its highest level since 2006, according to a senior research associate at the Harvard Joint Center for Housing Studies. “But conditions today are quite different from those of the early 2000s, especially in terms of credit availability. Rather, the current rise in prices reflects strong demand in a context of tight supply, helped by historically low interest rates.
Racial disparities persist in home ownership
Although the national homeownership rate remains on an upward trajectory, disparities between households of color and white households remain significant. In the first quarter of 2021, the homeownership gap between blacks and whites stood at 28.1 percentage points, an improvement from the record high of 30.8 percentage points in 2019, but still significant by historical standards. Income inequality contributes to disparities in homeownership, with the median income of white households ($71,000) being about 65% higher than that of black households ($43,000) and almost 30 % higher than Hispanic households ($55,000). Accumulating the savings needed for the down payment and closing costs is difficult for most first-time home buyers, but especially for renter households of color.
Housing cost burdens climb up the income scale
Housing affordability remains a significant challenge for the lowest income renters: more than 80% of renters earning less than $25,000 were financially burdened in 2019 (spending more than 30% of their income on housing) and the majority spent more than half of their income on housing. And while housing subsidies provide much-needed support, only a quarter of eligible households receive assistance. “The burden of housing costs has also moved up the income scale,” says Alexander Hermann, senior research analyst at the Center. “Seventy percent of renter households earning between $25,000 and $34,999 and nearly 50 percent of renters earning between $35,000 and $49,999 were cost-stricken in 2019.”
Millions at risk of eviction or seizure
Due to widespread income losses during the pandemic, 14% of all renter households were behind on their housing payments at the start of 2021, and in ten states, more than a fifth of renters were behind. Racial disparities are also evident here, with 29% black, 21% Hispanic, and 18% Asian late renters, compared to just 11% white renters. With so many tenants struggling financially, there are concerns about an impending wave of evictions. So far, substantial federal aid, as well as federal and state eviction moratoria, have prevented large-scale displacement. However, if the federal moratorium ends in July, avoiding a substantial increase in evictions and homelessness will depend on whether the latest round of assistance reaches at-risk households in time.
Struggling homeowners have also received support in the form of loan forbearance and a ban on foreclosures. This protection, allowing borrowers to defer or reduce their payments for up to 18 months, has been extended to the 70% of homeowners with federally guaranteed loans. As of March 2021, the majority of the 7.1 million loans that had entered forbearance had left that status, but the results are uncertain for the 2.3 million borrowers who have not yet resumed their mortgage payments. And for many households that had to dip into their savings or go into debt to cover lost income last year, the effects of the pandemic will linger for a long time. Recovering from the devastating effects of the pandemic will be even more difficult for those who have lost loved ones to COVID-19 or are suffering the debilitating long-term effects of the virus themselves.
Policymakers must prevent those at risk from falling behind
The unprecedented events of 2020 have both revealed and amplified the impacts of unequal access to decent and affordable housing. “For households with stable employment and good quality housing, their homes have provided a safe haven from the pandemic,” says Chris Herbert, the Center’s chief executive. “But for millions of people struggling to cover rent or mortgage, their housing situation has become increasingly precarious and these disparities are expected to persist even as the economy recovers, with many low-income households slow to regain their financial footing. Policymakers must listen to the needs of those who have fallen further behind, ensuring that they also benefit from the expanding economy.