Housing Confidence Bottoms Out Due to Unaffordability

High home prices, unaffordability cause confidence in housing health to drop to lowest levels in nine quarters

The desire to own a home remains high, currently at 79 percent among non-homeowners, however; 67 percent believe the American housing market is unhealthy, according to the latest ValueInsured quarterly Modern Homebuyer Survey. In addition, the number of people who believe buying a home today is a secure and smart investment dropped to 52 percent. Despite reports of a strong sellers’ market, the decline in confidence is significant across the board among homeowners and non-homeowners alike:

• Latest ValueInsured Housing Confidence Index registered at 62.0, a 4.9-point drop from Q1 2018.
• Both homeowners and non-homeowners reported sizeable drops, to 69.3 (-5.0) and 54.7 (-5.7) respectively. Millennial homeowners reported the largest decline among key segments with a 6.7-point drop.

The Confidence Index composites seven attitudinal dimensions directly related to home-buying and housing health sentiments – beyond general consumer confidence – to obtain an accurate measurement of Americans’ latest housing confidence.

Joe Melendez, CEO and founder of ValueInsured, explained, “Housing confidence – as do home prices – goes up and down, but what’s noteworthy now is the decline among homeowners, in particular millennials. Many are stuck in homes they have outgrown and cannot upgrade, which explains the inventory shortage we see at the starter-home level.”

But why?

In contrast to recent trade news purporting market excitement and that it is a great time to purchase a home, this survey shows homebuyers are fraught with trepidation intensified by three key factors:

• Confidence in the ability to afford a home has plummeted double-digits for all groups since a post-Brexit high, with homeowners who want to sell and then buy reporting an 11-point drop. Affordability confidence for non-homeowners who want to buy fell 13 points during that same period to just 32 percent;
• Concern about rising interest rates; 59 percent believe a 30-year fixed mortgage rate will reach 5 percent by 2019; 13 percent expect to see it at 6 percent by end of 2019; and
• Growing doubt that rising prices are sustainable with only 42 percent of millennial first-time homebuyers – the largest segment of buyers – believing a home they buy now will be worth more by the end of 2019. 68 percent of all Americans surveyed believe a correction will happen within 24 months.

Despite high home prices, even potential sellers’ optimism is waning, with 61 percent of homeowners saying the housing market is heading in a good direction “for people like me.” This is down from a post-Brexit high of 78 percent. The survey also found that 63 percent of homeowners (including 59 percent millennial homeowners) and only 37 percent of non-homeowners consider now to be a good time to buy a home. These are all the lowest levels recorded in the quarterly survey’s history.

Housing relief or regret

For people who are able to find a home in the current bidding-war, sight-unseen climate, buyer’s remorse is lurking. In fact, 62 percent of Americans surveyed say people who buy a home now will have buyer’s remorse. Among them, 24 percent believe 2018 homebuyers could feel the same level of remorse as those who bought in the last peak before the 2008 housing crisis.

“This is a pivotal time with rising prices and rates weighing heavily on consumers,” Melendez said. “Flat to declining home sales volume indicates sellers and buyers are not exactly jumping in with both feet. More of them could be moved off the sidelines if perceived security and confidence in home buying could be restored.”