According to national surveys in March and April 2018, Americans are growing more confident in the national economy and their overall financial situation. This is a good thing, but whether this translates into more people buying homes in 2018 remains to be seen.
Heading into the spring, which is a prime home buying season, about 70% of consumers reported it is a good time to buy a home. That is down from 72% late last year. It is the lowest point in 24 months. That is not the only negative sign about house buying confidence. Only 55% of renters report now is a good time to buy a house; this is down from 60% late last year. But people who already own homes, older people and those who live in more affordable parts of the country are more optimistic.
According to the National Association of Realtors, there is a shortage of homes for sale in many markets and prices and interest rates are rising. These factors are increasing challenges for people to buy, especially first-time buyers who have to come up with a down payment without equity to rely on. It’s no secret that banks and lenders have rolled out attractive home loan programs for first time buyers this year.
Housing finance experts say a major reason there is less confidence about buying a home for some markets and demographics is simply higher interest rates. One year ago, it was possible to snag a 30-year mortgage fixed at 3.5% or so. Today, it is a full point higher. While a 4.5% rate fixed for 30 years is still very low, it leads to a payment several hundred dollars higher than in 2017. That is enough to make many first-time buyers pause.
Some house hunters in tight markets also say they have become discouraged because there are not enough listings, and homes in their price range often have several offers at once within a week or two of initial listing. But there appears to be some light at the end of the tunnel. More homeowners are saying that mid 2018 is a good time to sell their house. The share of current homeowners who say this is a good time to sell went up from 71% last quarter to 74% this quarter.
Housing prices have soared in many markets, with even some smaller, cheaper markets going up as much as 10% this year. Many homeowners have amassed a lot of equity in the past five years. Home prices have increased a total of 48% across the country since 2011 and are up 6% in the US as of April 2018 for the year.
Many homeowners believe the US economy is getting better compared to the last quarter of 2017, with 60% saying the economy is good compared to 52% last quarter. This increase in optimism is partially be fueled by more job creation in much of the country, as well as bigger paychecks from recent tax cuts and faster wage growth.
That said, some metro areas with the best labor markets are suffering from a housing shortage. This is a reality that is depressing the mood for some buyers and preventing some renters from becoming homeowners. Some of the hottest markets in the country include Los Angeles, San Francisco and Seattle. Of course, as home prices go up, saving enough money for a down payment is also stopping some renters from buying. Renters who want to buy reported that 47% of them do not have enough income to save for a down payment, while 30% blamed student loan debt. And 28% said rents are rising.
Still, while home prices are going up in 2018, they are still 35% below the housing boom peak of 2007. So, there is still ample opportunity to buy a home even with higher interest rates. Consumer confidence will likely continue to be high as the economy does well in 2018 and 2019, so it is possible that this will begin to translate to more people becoming homeowners.
The bottom line is that consumer confidence is high, but this is not always showing up in people’s confidence to buy a home. Interest rates and prices have moved higher, and this is pricing some people out in hot markets. But signs point to stronger economic growth in the near and medium terms. The Fed is raising rates, so it thinks economic growth is on the horizon. This should put more money in people’s pockets and hopefully increase the number of people buying homes. Buying homes and being homeowners is good for the American economy, and we want as many people owning, who can really afford it, as possible.