CONSUMERS SHOW INDIFFERENCE TO HOMEBUYING
REPORTS SHOW THAT DESIRE TO BUY/SELL HOMES HIT A LOW IN OCTOBER
Hollywood November 19, 2018
For investors, data speaks volumes about what is driving consumer buying habits. Reports continue to indicate a decline in not only the number of people buying homes, but the number of people interested in home ownership.
That’s a subtle, but important, distinction. Over the course of several years, we have seen an increase in the number of people renting by choice, rather than out of financial or circumstantial necessity. Home ownership seems to carry less emotional weight with consumers now than it once did. For others, home prices may still be too high, even if their incomes have increased.
Home Purchase Sentiment Index
In its periodic National Housing Survey, Fannie Mae reported that consumer attitudes about both buying and selling homes dropped to near-record lows. The organization’s Home Purchase Sentiment Index (HPSI) measures consumers’ attitudes toward buying and selling, and it also factors in jobs, income, home prices and mortgage interest rates. Five of the six components in the HPSI decreased in the most recent survey, with consumer attitudes toward buying tying for the second-lowest level in the history of the index.
That decline becomes even more interesting when considered in the context of positive economic growth. Fannie Mae’s chief economist, Doug Duncan, said:
“The contrast between the survey’s findings of weak home buying sentiment and overall economic optimism mirrors what we’re seeing in the broader economy. While economic growth posted the fastest back-to-back pace in four years in the third quarter, residential investment declined for the third consecutive quarter, a first for the current expansion.”
Even as incomes rise, consumers don’t see buying a home as a wise choice in the current market.
What’s Driving Consumer Attitudes?
According to Neil Irwin, economics writer for The New York Times, buyers want even lower home prices while sellers are still hoping to net the higher home prices posted in previous months. That impasse is leaving the home market in a slump. Irwin writes:
“You would expect, in a zero-sum transaction like a home sale, for those [buyer/seller] numbers to move in opposite directions. Instead, it seems that sellers are unhappily realizing that they aren’t going to get what they thought their house was worth six months ago, and buyers still think homes are too expensive.”
What’s more, he says, while incomes have increased 25 percent since 2011, housing prices have jumped 48 percent in that time. So, many homes remain out of reach for buyers in spite of higher incomes.
In addition, more millennials choose to rent between the ages of 25 and 35 than did previous generations:
• 74 percent of millennials rented in 2016
• 61 percent of baby boomers rented in 1981 as young professionals
MyMove, a company that tracks the habits of people moving or changing homes nationwide, points to the Great Recession, the housing bubble of 2008 and postponing marriage and children as some of the major factors influencing this generational change. In addition, many of those millennial renters prefer the flexibility and low-maintenance lifestyle renting affords them, reports the company.
Oh, and those baby boomers who bought houses earlier in their lives? Many of them have returned to renting in retirement – or have plans to do so in the next few years. Others will leave their homes due to death or health concerns, which will ultimately create a “mass exodus” of baby boomers from the home ownership ranks, according to experts.
As reported by The Washington Post:
“Fannie’s study estimates that from 2016 to 2026, between 10.5 million and 11.9 million older owners will end their ownership status. Between 2026 and 2036, another 13.1 million to 14.6 million will do the same.”
Further complicating matters, upcoming generations aren’t likely to absorb the homes baby boomers try to sell:
“This massive and unprecedented generational unloading of houses could be ‘negative for the home sales market,’ the Fannie study warns, because the upcoming generations of buyers may not have the financial capacity — or desire — to absorb the large numbers of homes coming to market.”
Final thoughts
For the past several years, and for the foreseeable future, a number of factors have converged to move consumers away from home ownership. While the majority of Americans continue to own homes, the number of renters has been rising for some time. With both millennials and baby boomers seeking rental homes in greater numbers, we could see home ownership decline even more in years to come.
As these trends shift, the multifamily market has an opportunity to plan for rental demand.
To learn more about PointOne Holdings’ multifamily investment strategy throughout the Southeast region, visit us online. As always, we welcome your questions, so please feel free to contact us at any time.
