Americans’ Dream of Homeownership falls for the first time in five years, but Republicans are feeling new optimism about the housing market in 2017.
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 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.
 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.
Has the election affected Americans’ view of homeownership as part of their American Dream? Our interpretation at Trulia is that for most Americans, seemingly not. For the first time in five years, fewer Americans are telling us that homeownership is part of their American Dream, dropping to 72% this year from 75% last year, but the drop to 72% occurred before the election and remained so after. This suggests that the American Dream of homeownership hasn’t much been affected by President-Elect Donald Trump’s surprise victory, but perhaps they were muted by the uncertainty of an imminent change of the presidential administration.
While most Americans view of homeownership appear to have been unaffected by the election, millennials, on the other hand, have lost some of their warm and fuzzy feelings about owning a home. In November 2015, 80% of 18-34 year olds said homeownership was part of achieving their own personal American Dream. In October of this year, and just 10 days before the U.S. election, that number dropped to 76%. In the week after the election, it dropped again to 72%. However, millennials are a complex bunch. While their American Dream of homeownership fell for the first time in five years, 83% of them still plan on buying a home. Does this mean 2017 will be the year that millennials finally start to buy homes en masse? Probably not. Among millennials that currently plan on buying a home, 72% said they won’t do so until at least the end of 2018, so 2017 likely be a weak year for millennial home buying.
How will all of this affect the housing market in 2017? Based on these findings, as well as the extensive body of work we’ve rolled out this year, here’s what we expect in 2017:
Mortgage rates during the week of Nov. 28th 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.
What’s more, renters who wish to buy a home tell us they are more concerned about challenges in the housing market other than rising mortgage rates. In fact, rising mortgage rates places seventh among eight possible obstacles that potential buyers are saying is keeping them from buying a home. Just 18% of renters who wish to buy a home told us that rising mortgage rates are keeping them out of the market. Only the response “limited inventory” was lower at 8%. First on the list? The ever-elusive savings for a down payment. A full 59% of potential homebuyers tell us that saving for a down payment is their biggest obstacle to buying a home, followed by having poor credit (38%) and rising home prices (35%).
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.
Source: trulia.com ~ By: Ralph McLaughlin