The housing market appears to be showing some signs of a revival.
That's the opinion of the Joint Center for Housing Studies at Harvard University, which Thursday issued a hopeful view of residential real estate even as economic recovery remains elusive.
"While still in the early innings of a housing recovery, rental markets have turned the corner, home sales are strengthening and a floor is beginning to form under home prices," said the center's managing director, Eric S. Belsky, in its annual State of the Nation's Housing report.
Because new-home inventories are at record lows, the center anticipates that, unless the economy weakens substantially, stronger sales should further stabilize prices and pave the way for a pickup in single-family housing construction over the course of the rest of the year.
Single-family construction activity increased 2.3 percent in April, and is up 25 percent over the last six months, according to CoreLogic, the real estate information provider.
The bright note, as has been the case for almost two years, is the rental market, considered a safe haven for those who would typically be buying their first homes.
"Rental markets are on the mend thanks to sharp drops in construction and an increase of over 4.4 million renters since 2005," Belsky said. "Rental vacancy rates are falling, rents are increasing, and multifamily construction is up solidly."
A recent report by Marcus & Millichap confirms that trend in the Philadelphia region, where the vacancy rate in the first quarter was 3.9 percent, 1.1 percent lower than the same period in 2011.
Because of continued strong demand, the vacancy rate is expected to drop to 3.6 percent during 2012, Marcus & Millichap said.
In contrast, the nation's homeownership rate continues to slide, as "many would-be buyers have stayed on the sidelines waiting for the job outlook to improve and house prices to stop falling," Belsky said.
The housing market faces a number of challenges, the report stated.
The backlog of almost two million houses in the foreclosure process will keep distressed sales elevated and could keep price increases in check in areas, such as the Southwest and Florida, hardest hit by foreclosures.
Growth may remain restricted by the more than 11 million homeowners who owe more on their mortgages than their homes are worth.
These owners cannot sell without incurring a loss and have no home equity to borrow against to fund major remodeling.
Still, as CoreLogic pointed out this week, the flow of bank-owned repossessions has slowed over the last 18 months, making negative equity "a positive force in real estate markets by restricting supply in the face of increasing demand."
Chris Herbert, research director at the joint center, said what is needed is job creation on a mass scale.
"The country has seen new household formations fall well below expected long-run rates due to a falloff in young adults being able to move out on their own and a slowdown in net immigration," Herbert said.
"Even in 2011, fewer than 700,000 households were added and that's well below the 1.2 million or more annual trend expected under more normal economic conditions," he added.
The inability of many Americans to refinance, coupled with rising rents and high unemployment has boosted the number of people spending more than half their income on housing to 20.2 million.
"Even as the recovery takes hold in many markets across the country, we cannot lose sight of the long-run challenge of providing affordable housing for the most vulnerable, nor forget the damage done to foreclosure-ridden neighborhoods, which will take years to heal," he said.
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