Wal-Mart may lend some clues to the downside of the U.S. housing market.
The booming housing sector, which weathered an otherwise sagging economy and saw explosive growth in home sales from 2002-03, is poised for continued growth, according to an annual study conducted by Harvard University’s Joint Center for Housing Studies. But other trends that nip at the heels of this seemingly unsinkable market include overcrowding, possibly overheated prices in some markets, and a growing percentage of income spent on housing by homeowners and renters alike.
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Nicolas P. Retsinas, director at the center, said this year’s study, “2004 State of the Nation’s Housing,” paid closer attention to an increasing disparity of wages in the housing market. “The growing sectors of this economy pay lower wages. The largest single private employer in the United States is Wal-Mart,” he noted. The giant retailer has about 1.1 million employees and pays its average worker just under $18,000 per year.
Homeowners’ average monthly income, adjusted to 2003 dollars, dropped each year from 1999 to 2003, according to the report, from $4,607 in 1999 to $4,385 in 2003. And renters’ average monthly income dropped from $2,475 to $2,388 in that same period. Meanwhile, the median sales price of existing homes increased about 20.1 percent from $141,552 in 1999 to $170,000 in 2003.
U.S. renters and homeowners are spending more on housing as income levels have dropped and housing costs have risen. In 2001 an estimated 29.6 percent of the 106.4 million U.S. households spent 30 percent or more of their total income on housing, compared with about 28.2 percent of households in 1997, the Harvard center reported. And 13.4 percent of U.S. households spent at least half of their income on housing in 2001 compared with 12.8 percent in 1997. Cost burdens to renters increased only slightly from 1997 to 2001 while the cost burden for homeowners saw a larger increase.
For lower-income households, the picture was bleaker. About half of the lowest-income households–those in the bottom fifth of the nation in terms of income–spend at least half their income on housing. About 18 percent of elderly homeowners and 38 percent of elderly renters spent at least half of their incomes on housing in 2001, according to the study.
The cost of housing is also significantly more burdensome for single-earner households than it is for dual-earner households, according to the study. In 2000, about 34.5 percent of all households were single-earner households, and about 21 percent of them spent 30-49 percent of their income on housing, while about 16 percent spent at least half of their income on housing.
About one-quarter of the estimated 8 million single mothers in the United States spend more than half of their income on housing, according to the study, and about 21 percent of all unmarried women spend at least 50 percent of their income on housing, compared with about 11 percent of unmarried men. Unmarried women accounted for 30 percent of the growth in homeowners from 1994 to 2002, the study also found.
About 6.1 million households were in crowded conditions in 2000, the highest number since 1960, according to the study. Retsinas said overcrowding generally had been trending down since the mid-1980s, and the upswing was likely indicative of higher housing costs.
“We thought one of the serious housing problems this nation had was behind us–the problem of overcrowding,” he said. While this situation is in some cases a product of cultural preferences, Retsinas said, “Most of it has to do with the cost of housing.”
While new single-family home sales jumped about 11.5 percent and existing single-family home sales grew about 9.6 percent from 2002 to 2003, the multifamily rental vacancy rate climbed to a record-high 10.7 percent in 2003. Rental prices continued to climb in 2003, when renters spent about 29 percent of their income on rental costs and related fuel and utility costs. That compared with after-tax home mortgage payments that amounted to about 18.6 percent of homeowners’ income in 2003. The rental market is expected to pick up as housing prices drive people back to that option and a wave of younger households approaches the market.
The Harvard study reported that a “soft landing” was more likely than a sudden crash to follow this housing boom.
“Housing construction appears to be in line with long-run demand, and a strengthening economy should support house prices,” the study stated. “In addition, changes in the housing finance system have made markets more resilient and better able to adjust quickly to interest-rate movement.” But a reversal in job growth or large spikes in interest rates could mean a “rougher ride” for the housing sector, the study also noted.
Retsinas characterized the prolonged prosperity of the housing market as its “muscularity.”
“It has been so strong for this long–strong enough to outlast the recession that we’ve had and strong enough to outlast the jobless recovery. We continue to be relatively bullish about the long-term prospects. The numbers are just absolutely astounding,” he said.
Mortgage rates were a major enabler for the housing boom, dropping from 7.9 percent in 2000 to 5.7 percent in 2003. Low mortgage rates led to an unprecedented $2.4 trillion in mortgage refinancing in 2003, which included an estimated $139 billion of cash-out refinance activity.
Growth in immigration should continue to fuel housing demand, Retsinas said, and household growth is projected to grow by 13.3 million from 2005 to 2015. The U.S. Census Bureau reported that the total number of U.S. households in 2003 was 111.3 million, and Retsinas said housing starts tend to reflect household formations.
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