The Joint Center for Housing Studies (JCHS) at Harvard University on Friday released its 2017 report on The State of the Nation’s Housing. The annual report notes that incomes are rising and household growth is strengthening, putting the housing sector in position to become an important engine of U.S. economic growth.

The recovery from the housing market collapse of a decade ago has been both widespread and uneven. In 97 of the 100 largest U.S. metro areas, nominal home prices have risen. But home prices exceed previous highs in only 41 of those metros, and in 32 cities house prices remain down by at least 15%.

Home price changes have increased least in low-income areas (median incomes less than 80% of statewide median), where 2016 prices remain 13.7% below their prerecession peaks. In moderate (median) income areas, prices remain 6.5% below their prior peaks and in high income (120% of statewide median) areas prices are down just 3.3% from their peaks.

According to the JCHS report:

The cumulative impact of these differences on real home price appreciation has a strong regional pattern. Markets primarily along the East and West Coasts have seen inflation-adjusted home values increase by more than 40 percent since 2000, while metros in large swaths of the Midwest and South have experienced declines. … Although the substantial increase in high-appreciation markets is a boon for current homeowners, it has also pushed homeownership out of reach for many. Indeed, home values now average $575,000 in the 10 metros with the highest appreciation rates—more than four times the $135,000 average in the 10 markets with the lowest appreciation rates.

New construction in 2016 totaled 1.17 million units, well below the average of 1.4 million to 1.5 million seen in the 1980s and 1990s. New homes for sale were on the market for an average of 3.3 months, sharply lower than the 5.1-month average since record-keeping began in 1988, and just 1.65 million existing homes were on the market last year, the lowest count in 16 years. The report notes:

Conditions are particularly tight at the lower end of the market, likely reflecting both the slower price recovery in this segment and the fact that fewer entry-level homes are being built. Between 2004 and 2015, completions of smaller single-family homes (under 1,800 square feet) fell from nearly 500,000 units to only 136,000. Similarly, the number of townhouses started in 2016 (98,000) was less than half the number started in 2005.

A decline in household formation partially explains the slowdown in construction. More adults between the ages of 18 and 34 (millennials) reached an all-time high of 35.6% in 2015. Immigration to the United States also increased last year to just under 1 million, virtually all of which were documented immigrants. U.S. household growth is now projected to reach 13.6 million in 2015 to 2025, roughly equal to the increase in the 1990s. Minorities will drive almost three-quarters of these gains, with Hispanics alone accounting for a third. The JCHS comments:

Whether these projections come to pass will depend in no small part on the health of the US economy. But perhaps the key unknown is the pace of immigration. If successful, proposed policies to curtail both undocumented and documented immigration would be a significant drag on household growth in the coming years.

The U.S. housing market has largely overcome the worst effects of the housing market collapse, but the recovery has been uneven and the housing market could be in one of those chicken-and-egg situations where either construction of moderately priced housing has to increase in order to lure millennials into the market or millennials have to hit the market in droves before homebuilders lift a hammer. The JCHS puts it more elegantly:

Given the pivotal role of housing in determining the well-being and financial security of every individual and family, attending to the nation’s critical housing challenges should have primacy in the debates over public spending, tax policy, and regulatory regimes. National housing policy must also recognize the diversity of conditions existing both within and across markets. As such, state and local governments have a central role to play in defining specific community needs, crafting policies, and marshaling resources to support housing solutions. But only the federal government can provide funding at the scale necessary to make meaningful progress toward the nation’s stated goal of a decent home in a suitable living environment for all.

More details on the U.S. markets, demographics, home ownership, rental housing and the challenges each presents are available at the JCHS website.

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