Tight credit, particularly for young people, is hindering the housing recovery, according to research published at the Joint Center For Housing Studies at Harvard University.
According to the State of the Nation's Housing 2013 report, the recession has significantly boosted the rental market in the past several years. In 2012, the number of renter households in the U.S. increased by 1.1 million, and construction of new multifamily units increased at a double-digit rate.
However, this has come at the expense of the housing market.
Meanwhile, interest rates and home prices, although now on the rise, have hit historic lows, the unemployment rate is improving, inflation has stabilized, and the country's economic picture has improved overall.
So why are so many young people still opting to rent?
As the study reveals, banks have tightened their lending standards, which in turn is preventing young people from buying homes. People age 25 – 54 saw their homeownership rates reach the lowest point in 2012 (record keeping began in 1976), according to the report.
‘Tight credit is limiting the ability of would-be home buyers to take advantage of today's affordable conditions and likely discouraging many from even trying,’ says Chris Herbert, director of research at the Joint Center for Housing Studies. ‘At issue is whether, and at what cost, mortgage financing will be available to borrowers across a broad spectrum of incomes, wealth and credit histories moving forward.’
Currently, more than 20.6 million households are spending more than half of their household income on housing, the report finds. And with so many homeowners struggling just to keep their homes, it could be that many younger people simply do not want to face the burden of having a mortgage.
Considering current economic conditions, the need for a strong rental market remains important, the research finds. However, federal budget sequestration will pare down the number of households receiving rental housing assistance.
‘Given the profoundly positive impact that decent and affordable housing can have on the lives of individuals, families and entire communities, efforts to address these urgent concerns as well as longstanding housing affordability challenges should be among the nation's highest priorities,’ says Eric S. Belsky, managing director of the Joint Center for Housing Studies.
To download the study, click here.