People in Washington may be talking about whether there is a housing bubble ready to burst, but Harvard University economists see little reason for homeowner gloom: U.S. home prices have been climbing for 13 years, with the rise in 2004 the largest annual jump since 1979, according to a new report from the university's Joint Center for Housing Studies.
Federal Reserve Chairman Alan Greenspan last week warned that home prices in some areas are "unsustainable." In a report to be released today, however, the Harvard economists say the market continues to be fueled by easy credit, low interest rates, affluent baby boomers buying second homes and the continued growth of immigration. Moreover, thanks to an expanding economy, regulatory constraints and a limited supply of land for development, they see no sign of a slowdown.
"The muscularity and potency of this market continues to amaze," said Nicolas P. Retsinas, the center's director and a former assistant secretary for housing at the of Housing and Urban Development Department.
Most housing indicators set records in 2004, the report noted, including the homeownership rate, new home sales, existing home sales and single-family housing starts.
But some Americans have been left out of the party, according to the report. Renters face a diminishing supply of apartments because rental-housing construction fell to a 10-year low in 2004 and affordable units that are being demolished to make way for high-end condominiums are not being replaced, according to the report. Many renters can't afford the new units being constructed. About half of renters now face "severe cost burdens," the report said.
However, there are fewer renters because homeownership has risen to a record high of 69 percent of households, as renters took advantage of lower interest rates to get a foothold in the housing market.
The price increases in the purchase market have caused particular anguish for would-be first-time homeowners, particularly those living in high-priced markets such as Southern California, New York, Washington and Florida coasts. In 33 of the nation's 110 metropolitan areas, median home prices now are about four times median incomes. Land constraints in many of those cities make it likely that the regions will have "permanently higher prices," the report said.
"There's increasing distance between the housing haves and have-nots," Retsinas said.
Homeowners have much reason for cheer, according to the report. Housing prices rose last year in all metropolitan areas tracked by Freddie Mac. The downside is that as prices rise, property taxes also are rising in many cities, which the report's authors noted "falls especially hard on elderly owners with low fixed incomes."
Residential development continues to move further out into the metropolitan fringes as developers leapfrog into former agricultural regions to construct traditional single-family houses with yards. The number of cities where more than half the households live outside the urban cores has tripled since 1970, including places such as Austin, Kansas City, New Orleans, Norfolk and Sacramento, the report said. Single-family home starts hit a record 1.6 million in 2004.
Where house prices are higher, commutes are growing longer. About 20 percent of Boston area households live 40 miles out of the central business district, as do about 10 percent in Las Vegas, New York, Portland, San Francisco and Washington.
Consequently, traffic congestion is worsening. About 3.1 million workers commute an hour or more a day, often from a house in a suburb to another distant suburb, making it more difficult for people to carpool. The number of workers commuting by car rose from 81 million in 1980 to 113 million in 2000, according to the report, and the share of commuters using public transit fell from 6.2 percent to 4.9 percent over that time.