Survey: Housing, Economic Sentiment on Divergent Paths

Real Estate In-Depth | March 2018

WASHINGTON— New consumer findings from the National Association of Realtors surprisingly show that while a growing share of households in the first three months of the year feel more confident about the economy and their financial situation, those positive feelings are not translating to positive views that now is a good time to buy a home.

That’s according to NAR’s first quarter Housing Opportunities and Market Experience (HOME) survey, which also found that homeowners are increasingly positive about selling, and non-homeowners have anxieties about saving for a down payment and qualifying for a mortgage.

Heading into the busy spring buying season, optimism that now is a good time to buy a home is at its lowest share in the past two years (68%; 72% last quarter). Among renters, feelings about buying are further diminished (55%; 60% last quarter). Conversely, those most optimistic about buying are homeowners, older respondents and those living in the more affordable Midwest and South regions.

Lawrence Yun, chief economist of the National Association of Realtors.
Photo Credit NAR

NAR Chief Economist Lawrence Yun says extremely challenging market conditions to start the year are chipping away at homebuyer optimism. “The critical shortage of listings in most markets continues to spark a hike in home prices that is not easy for many buyers—and especially first-time buyers—to overcome,” he said. “Adding more fuel to the affordability fire is the fact that mortgage rates have shot up to a four-year high in just a few months. Many house hunters are telling Realtors that they are dispirited by the stiff competition for the short number of listings they can afford.”

Amidst the ongoing climb in home prices in most markets, the share of homeowners who believe now is a good time to sell increased to 77% in the first quarter (76% last quarter), which is second only to last year’s third quarter (80%) as the highest overall share since the HOME survey began in December 2015. A year ago, 69% of homeowners thought it was a good time to sell.

“There’s no question that a majority of homeowners have amassed considerable equity gains since the downturn. Home prices have grown a cumulative 48% since 2011 and are up 5.9% through the first two months of this year,” said Yun. “Supply conditions would improve measurably, and ultimately lead to more sales, if a growing number of homeowners finally decide that this spring is the time to list their home for sale.”

Consumers Feeling More Upbeat About the Economy

Although optimism was a tad higher a year ago (62%), more households in the first quarter of this year (60%) believe the economy is improving compared to the fourth quarter of 2017 (52%). Homeowners, residents from the South and those from rural areas were the most optimistic about the direction of the economy.

Stronger economic confidence this quarter also led to households having improved feelings about their financial situation. The HOME survey’s monthly Personal Financial Outlook Index, showing respondents’ confidence that their financial situation will be better in six months, rose from 59.1 in December to 62.0 in March. A year ago, the index was slightly higher (62.6).

“The jump in optimism to start the year can be attributed to the robust job creation in most of the country, as well as the larger paychecks households are enjoying because of faster wage growth and the recent tax cuts,” said Yun. “These three positives should further ignite buyer demand. However, several metro areas with the healthiest labor markets also have the most severe supply and affordability pressures. This troublesome reality is what’s dampening moods and keeping many would-be buyers at bay.”

Income, Debt And Anxiety Hold Back Some Non-Homeowners From Buying

In this quarter’s survey, non-homeowners were also asked about the barriers preventing them from saving for a down payment. Limited income (47%), student loan debt (30%), and rising rents (28%) were the top three obstacles cited, followed by health and medical costs (14%). Only 14% also said that nothing was holding them back from saving for a down payment.

Non-homeowners were also asked for the potential reasons why qualifying for a mortgage would be difficult. Income uncertainty (45%), a low credit score (34%) and too much debt (26%) were mentioned the most. Twenty-nine percent said they lacked the financial knowledge or did not know the first step needed to qualify.

“It’s never too early for those wanting to own a home in the future to sit down with a lender to discuss their current financial situation,” said NAR President Elizabeth Mendenhall, a sixth-generation Realtor from Columbia, MO and CEO of RE/MAX Boone Realty. “Homeownership could be a more attainable goal once an interested buyer finds out how much they can afford to buy, as well as what steps, if any, are needed to improve their chances of obtaining a mortgage.”

National Association of Realtors’ President Elizabeth Mendenhall

In January through early March, a sample of U.S. households was surveyed via random-digit dial, including a mix of cell phones and land lines. The survey was conducted by survey research firm, TechnoMetrica Market Intelligence. Each month approximately 900 qualified households responded to the survey. The data was compiled for this report and a total of 2,702 household responses are represented.