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As Housing Trends Shift, So Does Renter, Buyer and Seller Sentiment

Last year marked a break from the unrelenting and accelerating home price growth that characterized the market for several years straight – growth fueled by high demand, limited inventory and cheap financing. But while that break may ultimately prove beneficial to some, the shifting dynamics seem to be giving many buyers, sellers and renters pause as we enter a new year: Younger would-be buyers are more pessimistic on the value of homeownership; financial obstacles are proving stubborn to overcome; and sellers are less bullish.

To better understand how 2018 shaped the 2019 outlook of buyers, sellers and renters, Trulia commissioned a survey of more than 2,000 U.S. adults. We found:

  • Americans still dream of owning their own homes, although the dream is faltering for younger adults. After two years of no change, the share of Americans who say that homeownership is part of their personal “American Dream” ticked up from 72 percent to 73 percent of Americans. But the share dropped among 18-to-34-year-olds to 71 percent, down from a high of 80 percent in 2015.
  • Money continues to be the biggest obstacle to homeownership. Entering the housing market is rife with barriers. Saving for a down payment and rising home prices are top-of-mind for renters who wish to buy.
  • Home sellers less optimistic as home price appreciation slows. The gap between those saying it will be better and those who think it will be worse to sell in 2019 compared to 2018 was cut in half, as market conditions begin to favor buyers after years of seller control. In fact, of Americans who plan to buy a home, 40 percent intend to buy in the next two years (by the end of 2020), a 7 percentage points increase over last year.
  • Fear of possible wildfires, hurricanes, tornados and floods not deterring homebuying. The increased cadence of natural disasters does not appear to worry most Americans, with 52 percent reporting that they are no more or less concerned about the potential threat of a natural disaster affecting their home than they were in prior surveys.

The American Dream of Homeownership Still Alive, But is Falling for Younger Adults

The share of young Americans that say homeownership is part of their personal “American Dream” is falling, likely driven lower by increasing housing costs and a series of obstacles—from student loan debt to unsteady employment—that their older peers don’t have to contend with.

Since we started tracking homeownership sentiment as part of the American Dream in 2009, it has become clear that the possibility of buying and owning a home appears to drive how Americans feel about homeownership in general. For example, when home values were in a freefall between 2009 and 2011 in the wake of the Great Recession, the importance of homeownership to the American Dream also declined. After home values bottomed in 2011 and slowly began to recover, sentiment towards homeownership rose – until 2015, after which inventory began to decline and home value growth continued to accelerate, creating some new homeownership obstacles.

The recent slowdown in the housing market appears to have injected fresh optimism: 73 percent of all Americans reported that homeownership was part of their American Dream, up slightly from the last two years. But among the youngest cohort of Americans—those aged 18 to 34—the share dropped to 71 percent, the lowest level since 2011.

Money Troubles Holding Back Home Purchases, and Rising Prices Still Nag

So, what could be putting a damper on the importance of homeownership to the American Dream? Money. Nearly all U.S. renters who say they wish to buy (95 percent) also said they perceive barriers to homeownership, many related to their personal finances. Saving enough for a down payment leads the way, with 53 percent of renters who wish to buy citing that as one of their biggest obstacles to homeownership. Having a poor credit history and qualifying for a mortgage—closely related obstacles—are seen as impediments for 33 percent and 29 percent, respectively, of renters who wish to buy.

And though the pace of home price growth is slowing, home prices are still rising, and years of consistently rising prices is clearly frustrating many potential buyers. Among renters who wish to buy, 36 percent said the rising price of a home is one of the biggest obstacles that keep them from buying. In addition, mortgage interest rates that climbed substantially in 2018 also weighed on renters looking to buy. Nineteen percent of renters who wish to buy cited rising mortgage rates as one of their biggest obstacles to home buying, up from 13 percent just this past spring, before mortgage rates jumped to seven-year highs.

There are many additional obstacles that aren’t directly tied to housing but that nevertheless impact younger Americans’ homeownership prospects more than their older peers’. Among 18-to-34-year-old renters who wish to buy, not having a stable job (30 percent) and not being able to pay off student debt (26 percent) are a few major obstacles that burden this age group more than Americans as a whole.

Biggest obstacles to homeownership among renters who wish to buy a home
All Americans 18-34-Year-Olds
Saving enough for down payment 53% 56%
Rising home prices 36% 35%
Having a poor credit history 33% 32%
Qualifying for a mortgage 29% 26%
Not having a stable job 24% 30%
Unable to pay off debt (excl. student debt) 22% 23%
Rising mortgage rates 19% 18%
Unable to pay off student debt 17% 26%
Not being able to find a home I like 11% 16%
Increased tax burden due to recent tax reform 10% 10%

 

As Housing Market Slows, Sellers Less Optimistic but Intent to Buy Remains Strong

But buyers aren’t alone in expressing some frustrations in the current market – many would-be home sellers have noticed the changing tides, too. With slowing home price appreciation, Americans appear to be more circumspect about the benefits of selling this coming year. More continue to think this year will be a better year to sell than 2018 was, but the gap between those thinking next year will be better and those thinking it will be worse has significantly narrowed.

Twenty-nine percent of Americans said they believe 2019 will be a better year to sell than 2018, compared to 21 percent who said next year will be worse than 2018 – a gap of 8 percentage points. But when asked the same question last year, Americans were much more bullish on selling: 31 percent said this year would be better than last, versus just 14 percent who felt it would be worse, a gap of 17 percentage points. In other words, in just one year, the gap between the seller bulls and seller bears was cut in half.

Still, Americans are no more optimistic when it comes to buying a home, either. More respondents said they thought 2019 would be worse for buying than 2018 (28 percent) than those who said this year will be a better buyer year than last (25 percent). The share of those saying it would be a better year was flat compared to a year ago, while the share of those saying 2019 would be worse for buyers was up 3 percentage points.

Even as the share saying 2019 may not be as favorable for buying as 2018, many still say they intend to buy regardless in coming years. Among Americans who said they plan to purchase a home, 19 percent say they will do so in the next year – up from 16 percent a year ago. But most prospective buyers said they plan to wait until after 2020: 60 percent of Americans planning to buy a home said they planned to wait more than two years to do so (down from 67 percent a year ago). Homebuying demand is strong, but Americans are realistic about market conditions and clear-eyed around what impediments they are likely to encounter.

Housing Market Unfazed by Natural Disasters

In 2017, when Hurricanes Harvey, Irma and Maria swept through the southern states and wildfires raged in California’s Napa, Sonoma and Ventura counties, it’s likely many did not consider these disasters to be mere prelude. And yet, 2018 was an arguably worse weather year: Hurricane Michael—the third-most powerful Atlantic hurricane to make landfall in U.S. history—swept through Florida and Georgia, leaving destruction in its wake. Wildfires, including the Camp, Woolsey and Hill fires, destroyed thousands of homes in Northern and Southern California.

And still, homeowners seemingly remain unfazed by the threats posed by more frequent and more destructive natural disasters.

A majority of Americans (52 percent) said they are no more or less concerned than in years past about the potential threat of a natural disaster affecting their home. In fact, 11 percent of Americans said they are somewhat or much less concerned about natural disasters than in the past, more than double the share from a year ago (5 percent). Perhaps Americans are simply resigned to what California Governor Jerry Brown calls “the new abnormal” when referring to the increasing rate of devastating natural disasters.

Based on these consumer sentiments, it’s clear the changes happening in the U.S. housing market are giving buyers, renters and sellers pause. After several years of frenzy thanks to tight inventory, rapidly rising home prices and record-low mortgage rates, 2018 marked a turning point. Signs of cooling have been observed in major housing markets across the country. Many will likely hold off from buying and selling in 2019 to wait and see what happens.

Methodology

This survey was conducted online within the United States by The Harris Poll on behalf of Trulia from November 7-9, 2018 among 2,021 U.S. adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology for this survey or previous surveys, including weighting variables and subgroup sample sizes, please contact trends@trulia.com.