Report Says Immigration Crucial For Housing Recovery

Maurna Desmond, 06.22.09, 11:53 AM ET

A perceived strain on government resources has caused some Americans to begrudge the country's immigrant population. But Harvard researchers, in a new white paper released Monday, are saying that a slowdown in immigration could hurt the long-term real estate market.

In the 2009 State of the Nation's Housing Report, Harvard economists say real estate remains under considerable strain due to rising unemployment, falling home prices and tighter lending standards. "The best that can be said of the market is that house-price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery," says Eric S. Belsky, executive director of the Joint Center for Housing.

Further out, though, analysts optimistically conclude that "demographic moorings of future demand remain strong" as the "largest generation in American history will be reaching young adulthood in record numbers over the next decade."

While the natural ebb and flow of family formations is expected to reinvigorate housing, the unknown variable, future immigration levels, "remain a wild card that could either dampen housing demand or lift production even higher." Fewer people have been moving to the U.S. since job opportunities have slumped, and if this continues "a deep, prolonged recession would likely suppress immigration to levels that are never fully made up."

One cushion: The echo-boom generation (ages 25 to 44) far outnumbers the baby-boom generation (ages 44 to 60). Assuming that annual immigration falls 40% below the average of the first half of this decade, household growth for the next 10 years should still be close to 1995-2005 levels.

Another silver lining: Due to major production cuts by home builders, the institute estimates that the 1 million- to 1.5 million-unit glut of new homes that existed at the beginning of 2005 fell to a technical shortfall of 100,000 to a half million units by 2009 based on long-term demand. "Progress in working off the oversupply is masked because the weak economy is driving household growth and second-home demand below long-run potential," reads the report.

Of course, risks remain. Housing could be perceived as a risky bet moving forward, keeping investment away. And if incomes don't start rising, home prices may stay down indefinitely.

So far the Obama administration has been working to revive the housing market by providing a tax credit of up to $8,000 for first-time home buyers and encouraging eligible homeowners to refinance their mildly underwater mortgages (depreciation has made the debt exceed the home bought) through government lenders Fannie Mae and Freddie Mac.

Experts agree that the Federal Reserve's efforts to keep the lending rate around zero has supported housing by making homes more affordable for new buyers and making new mortgages possible for existing ones. Harvard researchers criticized these efforts as insufficient, noting that the "federal tax credit (in real terms) and interest-rate reduction are still less generous than the stimulus used to jolt the housing market back to life in 1974."

http://www.forbes.com/2009/06/22/harvar ... using.html