Friday, June 15, 2012

Housing: The Harvard Report

The Lehmann Letter (SM)
Yesterday The Joint Center for Housing Studies of Harvard University issued its report on “The State of the Nation’s Housing 2012”

Several news reports remarked on its favorable tone. And the executive summary leads with a good quote:

“After several false starts, there is reason to believe that 2012 will mark the beginning of a true housing market recovery….”

But further examination reveals the report’s rosy assessment of the rental-housing market does not apply to the ownership market: What most of us refer to as “housing.” The rental market has been strong and is getting stronger, partly because those driven from home ownership must rent. Housing (ownership) is a different matter.

Here are some closing lines from the report’s executive summary:

“With moderate gains in multifamily construction, improving sales of existing homes, and modest increases in single-family starts, housing should make a stronger contribution to economic growth in 2012 than it has in years. But while the rental market rebound is on track, the owner-occupied market still faces a number of pressures that may make the turnaround more muted than in recent cycles.

“In particular, sales of distressed properties are holding down home prices, and millions of owners are unable to sell because they are underwater on their mortgages. These conditions are impeding a more robust recovery in existing home sales as well as in improvements spending, which usually increases right after a home purchase……

“The greatest potential for recovery in the for-sale market lies in its historic affordability for well-positioned homebuyers. The dive in home prices and record-low mortgage rates have made owning more attractive than in years. But the availability of mortgage financing for young buyers with limited cash, other debts, and less than stellar credit is far from certain. Since the market meltdown, underwriting has become much more restrictive……”

Or, as this letter has put it, housing is up against a balance-sheet crisis: Low liquidity, depleted assets, excessive debt and reduced net worth. That’s what impedes home-purchase for too many families. Their balance sheet can’t afford the acquisition of this most important asset. It’s not an income-statement problem; it’s a balance-sheet problem.

(To be fully informed visit

© 2012 Michael B. Lehmann

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