Housing Outlook

Report Outline
Climbing Cost of Home Buying
Government's Role in Housing
Influences on Housing Trends
Changes in Household Size, Demographics
Construction Techniques and Fuel Prices
Special Focus

Climbing Cost of Home Buying

Forecast for Record Construction in 1977

Home building has often been characterized as a boom-or-bust industry, primarily because it is so sensitive to the availability and cost of mortgage credit. The housing industry is currently pulling out of its worst slump since World War II, and home builders have predicted that a near-record amount of new construction will begin this year. But this optimism, though welcomed by the nation, does not necessarily extend to the various housing needs of the coming decade. Nor does the predicted increase in housing “starts” this year mean that more families will be able to buy new homes. Although the number of new homes may increase, so will the prices, and average-income families will continue to be squeezed out of the new single-family housing market.

According to a recent study on home ownership issued by the Joint Center for Urban Studies at Harvard University and the Massachusetts Institute of Technology, sales prices of new single-family homes have climbed twice as fast as family incomes over the past six years. And the monthly costs of home ownership, which includes utilities, taxes, insurance and maintenance, have increased even more rapidly than sales prices. “If the trends from 1971 to 1976 continue for another five years,” say the authors of the study, “typical new homes in 1981 will sell for $78,000 and only the most affluent groups will be able to afford them.” The median sales price of a new single-family home currently is $47,500, the Bureau of the Census reported on April 8. Half of all new homes cost more and half less.

The Joint Center calculated that 46.6 per cent of American families could afford to buy a median-priced new house in 1970, but only 27 per cent could afford to in 1976, What is causing the price of newly built homes to increase at such a pace? One factor is demand arising from the increase in the number of households formed in this decade—from 63.6 million households in 1970 to 71.7 million in 1975. Young, single adults, the elderly, and those who are separated or divorced have all tended to form separate households more frequently than in the past. And the “baby boom” children of the 1940s and 1950s are now starting families of their own. Another factor is that more couples are realizing that a house is an excellent investment. Many are becoming “trade-up” buyers and taking the profit from the sale of one home to buy another. Indeed, about 70 per cent of today's buyers are already homeowners.