A lack of interest in homeownership and fewer household formations hampered the housing industry during 2010 as unemployment remained high and home prices fell driving many home buyers away, the Joint Center for Housing Studies’ (JCHS) at Harvard University concluded today in its latest annual State of the Nation's Housing report.

The national homeownership rate fell below 67% in 2010 from 69% in 2004, while1.4 million single-family homes were converted to rentals in 2007 to 2009, almost double the number that shifted from 2005 to 2007, JCHS said. This trend continued into 2011.

Earlier JCHS reported predicted the pieces were in place for housing to pick up this year, but during the first quarter new home sales fell to record lows and home prices continued to slide. The center cited tighter underwriting requirements and uncertainty about the direction of home prices as the cause of the weak market conditions.

"Weak job growth, high unemployment, slumping home prices, and subdued consumer confidence have all hampered a rebound in residential invest­ment," the center said, adding later: "Local housing markets will revive at different rates, in propor­tion to the depths they hit during the recession, the amount of overbuilding that occurred, and the speed at which job growth resumes."

JCHS noted the federal government's Current Population Survey shows the number of households nationwide increased by roughly 1.2 million per year between 2000 and 2007, but then plunged to just 500,000 per year between 2007 and 2010. This household formation rate is considered a key driver of demand for new home construction.

JCHS expressed uncertainty as to when demand would revive, citing a number of factors that can easily upset predictions. An improving economy, bolstered by lower unemployment rates, may help todrive a housing recovery, it said, but likewise a continually sputtering economic engine could keep people from moving out into their own homes.

The so-called Echo Boomers--the cohort of people born since 1985 who collectively are bigger group even than Baby Boomers--are now moving into their 20s and are beginning to reach an age were most generations historically start out and form households, JCHS noted. But it said this generation hasn't been breaking off and forming households at the same time as other generations have done so historically. Poor economic conditions may have been a turn off for many first-time homebuyers, who have historically driven growth in the new home market, the center said. Current economic conditions have kept them from the top of the market and they are often scared them off with falling home prices, difficulty acquiring financing, and unemployment.

In the near-term, however, rental housing is predicted to push the housing recovery as the owner-occupied market continues to struggle. With fewer first-time buyers qualifying for mortgages, renting has become a more viable and realistic option.

With uncertainty surrounding many home industry based institutions, such as Fannie Mae and Freddie Mac, as well as legislation surrounding homebuilding incentives and the availability of mortgage credit, the JCHS is cautious in its predictions in the report.

"Rental markets are likely to lead the hous­ing recovery," JCHS said. "The owner-occupied market continues to face headwinds, with servicing problems causing long delays in resolving the backlog of foreclosures. In addition, tighter underwriting requirements are preventing many potential first-time buyers from qualifying for mortgages. On the fore­closure front, the good news is that the share of home loans delinquent by at least three months dropped from 5.6% in early 2010 to 3.8% in March--a sign of light at the end of the tunnel. And once consumers perceive that a floor has formed under house prices, their re-entry into the market could quickly burn through the lean inventory of unsold new homes and slim down the excess supply of existing homes on the market."