Predictions about the Housing Market

The housing market is in a frenzy because of the coronavirus pandemic. The housing inventory is at a record low of 380,000—48 percent below what it was one year ago, according to Calculated Risk. Because of the scarce supply, housing prices are going through the roof—13 percent higher in December 2020 than one year earlier, according to Realtor.com. 

Don't expect this much exuberance in the housing market in the years and decades to come. According to a research report by Laurie Goodman and Jun Zhu of the Urban Institute, household formation will be relatively slow and homeownership will decline over the next two decades. In the report, Goodman and Zhu project household formation and homeownership through 2040 by age, race, and Hispanic origin. Here are some of their findings...

• Household formation will continue at a modest pace. Between 1990 and 2010, the nation gained a net of 12.4 million households in each decade. The number dropped to just 7.3 million between 2010 and 2020. While household formation in the decade ahead will exceed this slow pace, it will fall far below the heady days of the 1990s and 2000s. The projections show the formation of 8.5 million new households during the 2020s followed by an additional 7.6 million in the 2030s. The number of renter households will grow twice as fast as the number of owner households.
• Homeownership will decline for nearly all age, race, and Hispanic origin groups through 2040. The study projects a decline in the overall homeownership rate from 64 percent in 2018 to 62 percent in 2040. Those likely to be hit the hardest are Black households headed by 45-to-74-year-olds. "If current policies stay the same, the Black homeownership rate will fall well below the rate of previous generations at the same age and result in an unprecedented number of Black renters over 65," say Goodman and Zhu. 
• Between 2020 and 2040, all net new homeowners will be nonwhite. The number of Hispanic homeowners is projected to increase by 4.8 million, Asian by 2.7 million, and Black by 1.2 million. The number of non-Hispanic white homeowners will decline by 1.8 million during those years. 

Source: Urban Institute, The Future of Headship and Homeownership