Harvard: Real estate recovery hinges on return of demand

Household formation has plummeted and credit remains tight

BY INMAN NEWS, MONDAY, JUNE 6, 2011.

A pickup in household formation and access to mortgage credit are critical factors in spurring a lasting recovery in housing, researchers with the Joint Center for Housing Studies of Harvard University concluded in the latest annual "State of the Nation's Housing" report, released today.

While job growth and consumer confidence remain key to an economic recovery, the "Great Recession" has crimped demand for housing by slowing immigration and the creation of new households by young and middle-aged adults.

Estimates vary, but Harvard researchers say Census data shows household growth averaged about 500,000 per year in 2007–10 -- less than half the 1.2 million annual pace averaged in 2000–07. While builders have cut back drastically on home production, a more normal rate of household formation is needed to absorb the current glut of foreclosed and distressed homes, the report said.

An estimated 3.8 million baby boomers will need to downsize in the next decade, creating demand for smaller homes, and "the echo boomers" coming up behind them could represent a fresh supply of first-time homebuyers -- if they can find jobs and qualify for loans.