Housing in 2017: Discouraged Democrats, Revived Republicans, and Middling Millennials

The outcome of the 2016 presidential election took many by surprise, and injected both optimism and pessimism into consumers’ expectations about the housing market in the year ahead. Republicans are feeling a surge of confidence about the housing market in 2017 while Democrats turned bearish, according to a research conducted online by Harris Poll on behalf of Trulia,. Millennials also lost some enthusiasm when it comes to homeownership: fewer are saying that it is part of their American Dream, and most renters who are planning on buying a home are telling us they won’t do so until least the end of 2018.

As part of our annual look at the year ahead in housing, we commissioned two surveys of more than 2,000 Americans each about their housing hopes and fears in the year ahead. Rather than our single point-in-time look, we took a step further this year and deployed our annual survey twice, once before (Oct. 26-28) and once after (Nov. 15-17) the election, to find out if a presidential election affects consumers’ sentiments about the year ahead. We noticed some striking trends. Among them:

• Republicans swung from being more pessimistic about the housing market before the election to more optimistic afterwards. Before the election, the percentage point difference between optimistic and pessimistic Republicans was -9 points when it came to buying a home next year. After the election, that changed to +17 points – a massive 26-point swing.
• Democrats swung from being optimists about the housing market before the election to more pessimistic afterwards. Before the election, the percentage-point difference between optimistic and pessimistic Democrats was +13 points when it came to buying a home. After the election, that changed to -10 points – a drop of 23 points.
• Millennials’ dream of homeownership has fallen more than any other age group, falling to 72% this year from 80% last year. Though 83% say they plan on buying a home someday, 72% say they won’t do so until at least the end of 2018.

In addition to the survey, we also put together a short list of predictions for 2017:

• Rising mortgage rates will cool home buying in California and the Northeast, where our Rent vs. Buy margins are slimmest, but won’t have any noticeable impact in the rest of the country.
• House price growth in the Bargain Belt will catch up with the Costly Coasts, especially because homebuyers there are feeling a renewed sense of optimism about the housing market.
• Low inventory will bottom out and may even turn upwards, but homebuyers might not see price relief if President-Elect Trump’s policies boosts demand without boosting supply.

And finally, we’ve identified a list of 10 markets to watch in 2017 based on a healthy combination of affordability, job growth, and online search activity. Half of these markets are in the Florida, and so are the top three: Jacksonville, Cape Coral-Fort Myers, and Deltona-Daytona Beach.

How does a surprise presidential win affect the housing market? It’s too soon tell, but we do know that Republicans are feeling a renewed sense of confidence about all things housing in 2017. Democrats, on the other hand, are feeling down. When we conducted our first survey during the week of Oct. 24, Clinton was favored to win by a solid margin, and Republicans were pessimistic about the housing market in 2017. For each listed housing action in our question about the housing market in 2017, more Republicans thought 2017 would be worse than 2016. After fielding the survey during the week following President-Elect Trump’s win, Republicans had reversed course and were optimistic about the 2017 housing market for each listed housing action of our housing market questions. For example, Republicans went from having a -9 point margin[1] for buying a home in 2017 to a +17 point margin, a swing of +26 points, while shifting from a -5 point margin on selling a home to a +25 point margin, a swing of +30 points. Clearly, Republicans have moved from being bearish on the housing market before the election to outright bullish afterwards.

[1] Margin is the percent of respondents saying 2017 will be better than 2016 minus the percent saying worse.

On the other hand, Democrats have shifted from being bullish on the 2017 housing market to bearish. Before the election, more Democrats thought 2017 would be a better year than 2016 for each listed housing action in this question than thought it would be worse. They were most optimistic about selling a home in 2017 with a margin of +17 points. After running the survey in the week following the election, Democrats reversed course and became pessimistic on four out of five of our listed housing actions. For example, Democrats went from having a +13 point margin for buying a home in 2017 to a -10 point margin, a swing of -23 points, while sliding from a +9 point margin to a -11 point margin for getting a mortgage to buy a home, a swing of -20 points. In fact, immediately after the election Democrats were only optimistic about one housing market activity: selling a home, with just a margin of just +1 points.

Mortgage rates during the week of Nov. 28^th hovered near 4%, rising nearly 50 basis points (0.5 percentage points) since the election. Will higher rates stifle homebuying in 2017? We think not. In October, we found that mortgage rates would have to more than double nationally in order for the cost of buying a home to be roughly the same as renting one. That means the recent rise in rates isn’t anywhere near eliminating the financial advantages of homeownership. In some markets, like Houston and Philadelphia, mortgage rates would have to be over 14%. However if rates rise to 5%, we do think there are a few markets where homebuyers might take notice. In places such as Honolulu and San Jose, Calif., mortgage rates would only need to be 5.3% and 5.4%, respectively, for the cost of buying to be the same as the cost of renting, so if rising rates would have any impact on homebuying, it’s likely to be in these markets.

Last year, we expected housing markets along the Costly Coasts – namely, expensive metros in the West and Northeast– to slow, and markets in the Bargain Belt – the highly affordable housing markets in the Midwest and South – to pick up. In many cases, this has played out. For example, price growth has nearly halved in places like San Francisco (10% last year to 5.7% in September) and New York (3.2% last year to 1.8% in September), while year-over-year price growth has picked up in places like Minneapolis (3.5% last year to 5.3% in September) and Charlotte, N.C., (4.2% last year to 6.2% in September). Next year, we expect the Bargain Belt to continue catching up with the Costly Coasts for one primary reason: Bargain Belt metros are full of revived Republicans, especially in the South, while the Costly Coasts are full of discouraged Democrats. As we’ve shown above, Republicans have experienced a massive upward swing in optimism about buying and selling a home in 2017, so we think metros with the largest share of them are poised for housing market growth next year. In fact two of them, Jacksonville, Fla., and Cape Coral, Fla., rank among our top 10 metros to watch for 2017.

For example, each of the 10 metros with the largest share of votes for President-Elect Trump were in either the South (nine metros) or Midwest (one metro), while all but three of the 10 metros were in the West or Northeast (El Paso, Texas, Washington, D.C., and Madison, Wis.,). Does this mean Republican metros will suddenly boom and Democrat metros wane in 2017? Probably not, especially since job growth has been lower in red sttes, but if Republican enthusiasm and Democrat despair does lead to noticeable changes in housing market activity, we think they’ll help close regional differences in house price appreciation because of the stark geographic divide in where Republicans and Democrats actually live.

In our Fall Inventory and Price Watch, we found that although inventory fell to lows not seen since 2013 and there were signs that inventory was trending upwards in several markets, including supply constrained markets in the San Francisco Bay Area and Miami. As homebuilders continue to ramp up supply and rising prices and incomes help existing homeowners tradeup, we expect inventory to pick up in 2017. But as supply increases will house prices moderate? Maybe. While an uptick in inventory should theoretically help ease price growth, supply is only half of the story. If there is an equal or greater growth in demand, the pace of price appreciation could pick up again.

What might boost demand? A combination of a healthy economy and new policies under President-Elect Trump. In 2016, we’ve seen the unemployment rate fall to post-recession lows, income growth reaching post-recession highs, and household formation pick up. All three set the stage for increased demand for homes in 2017. Furthermore, President-Elect Trump has hinted at Dodd-Frank reform, which could eventually loosen credit and make it easier for homebuyers to borrow. This would also help boost demand. And because supply typically lags demand, we may see new demand translate into higher prices and reduced affordability. However, the new administration may also offer tax breaks to homebuilders in the hopes of boosting new supply, which could help satisfy new demand arising from financial regulation reform.

Looking for markets to keep an eye on in 2017? Look to the Sunshine State. Five of the 10 markets we think are poised for growth are there, with the rest in the Midwest, South, or Southwest. These markets exhibit strength in five key metrics: strong job growth over the past year, low vacancy rates, high affordability, more inbound home searches than outbound, and, because of the surprise election outcome, a large share of Republicans. They are:

1. Jacksonville, FL
2. Cape Coral – Fort Myers, FL
3. Deltona-Daytona Beach-Ormond Beach, FL
4. Grand Rapids, MI
5. Tampa-St. Petersburg, FL
6. Colorado Springs, CO
7. Charleston, SC
8. San Antonio, TX
9. Phoenix, AZ
10. North Port-Sarasota-Bradenton, FL

Jacksonville, Fla., tops our list because it has a very high inbound-to-outbound home search ratio and has strong job growth (ranked 6^th nationally in both categories). Cape Coral-Fort Myers, FL, ranks second because it has even higher job growth and a sharp drop in vacancy rates over the past year (ranked 4^th nationally in each), but falters in affordability (tied for 73^rd). Deltona-Daytona Beach –Ormond Beach, FL, ranks third on our list because of its strength in two categories: it has a very high inbound-to-outbound home search ratio and has strong job growth (ranks 3^rd in both categories), but like Cape Coral – Fort Myers, FL, lags in affordability. Note that markets in the costly West or Northeast fail to make our list, primarily because of low affordability (mostly in the West) and slower job growth (mostly in the Northeast).

The 2016 surveys were conducted online within the United States between Oct. 26^th and 28^th among 2,007 adults (aged 18 and older) and again on Nov. 15^th and 17^th, 2016 among 2,081 adults (aged 18 and over) by Harris Poll on behalf of Trulia via its Quick Query omnibus product. The 2015 survey was conducted online within the United States between November 19^th and 23^rd, 2015 among 2,016 adults (aged 18 and over) by Harris Poll on behalf of Trulia via its Quick Query omnibus product. Methodology for prior waves is available upon request, please contact dweidner@trulia.com

Figures were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was used to adjust for respondents’ propensity to be online.

All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of error which are most often not possible to quantify or estimate, including sampling error, coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments. Therefore, the words “margin of error” are avoided as they are misleading. All that can be calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples with 100% response rates. These are only theoretical because no published polls come close to this ideal.

Respondents for this survey were selected from among those who have agreed to participate in our surveys. The data have been weighted to reflect the composition of the adult population. Because the sample is based on those who agreed to participate in our panel, no estimates of theoretical sampling error can be calculated.

About The Harris Poll

Over the last 5 decades, Harris Polls have become media staples.  With comprehensive experience and precise technique in public opinion polling, along with a proven track record of uncovering consumers’ motivations and behaviors, The Harris Poll has gained strong brand recognition around the world. The Harris Poll offers a diverse portfolio of proprietary client solutions to transform relevant insights into actionable foresight for a wide range of industries including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant, and consumer packaged goods. Contact us for more information.