Potential buyers are losing their enthusiasm for housing

With the belief in continued home-price appreciation waning, consumer motivation to buy homes is declining.


During the housing bubble mania, everyone wanted to own a house, mostly to capture the gains of rapid home price appreciation. Nobody believed the value of houses could go down, so there was no perception of risk to temper the unbridled enthusiasm to buy homes.

Now that house prices have crashed, potential buyers know disaster looms if they buy at the wrong time. This increased caution has many buyers concerned about valuation and the obvious manipulations of the market with artificially low mortgage rates and artificially low for-sale housing inventory. This added concern dampens buyer enthusiasm.

Fannie Mae: Americans increasingly skeptical on housing

Housing survey shows people lack economic confidence

Trey Garrison, August 7, 2014 12:48PMCalifornia_real_estate_billionaire

Consumer attitudes about the direction of the economy overall have grown more negative and Americans’ attitudes toward the housing market remain mixed, according to results from the Fannie Mae July 2014 National Housing Survey.

The share of respondents who believe the economy is on the wrong track increased by 5 percentage points from last month to 59%.

Fifty-nine percent of Americans believe the economy is on the wrong track? What would motivate someone who believed the economy was on the wrong track to take on a 30-year mortgage? Perhaps a belief in rapid home-price appreciation?

The 12-month home price change that consumers expect declined again in July, falling to 2.3%, and the share of respondents who expect home prices to climb in the next year also continued on a downward trend, falling to 42%.

So a majority of Americans believe the economy is on the wrong track, and the number who believe house prices will rise — even a little bit — is less than half. Well, unless it’s the same 40% who believe the economy is good and house prices will rise, the sentiment on housing doesn’t favor a surge in owner-occupant buying.

“The continued cautious sentiment expressed across the range of consumer indicators this month gives weight to our view that the first phase of the housing recovery is decelerating, and 2014 will be a year of mixed housing outcomes with home prices rising more slowly and home sales falling slightly,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

america_highest_standard_of_livingWhether the home sales decline is slight is a matter of perspective; remember, home sales weren’t supposed to decline at all. The decline is a sign that the housing market didn’t achieve the much-sought-after escape velocity.

We have always believed that for the housing recovery to be considered robust, we will need strong and sustained full-time job and income growth.

We have obtained neither. Full-time job growth is weak, and income growth is barely keeping up with inflation.

Recent data indicating the creation of more than 200,000 jobs over each of the last six months,

Many of those jobs were part-time.

combined with this month’s improvement in the share of consumers reporting significantly higher household income than a year ago,

The government statistics don’t show an improvement beyond inflation.Economics-Bernanke

does provide some reason for optimism.

It provides opportunity for spin, which he is spinning like mad, but reality shows some reason for pessimism as the housing market will probably not improve much, if at all, in 2015.

If these trends continue, they could lead to some upside in housing in 2015,” he said.

A caveat plus a luke-warm prediction doesn’t sound particularly optimistic.

One bright spot for housing

The spin continues….

is that the gap has narrowed between the share of consumers who say now is a good time to buy a home versus those who say it is a good time to sell, indicating a better balance of supply and demand in the market.

In addition, the share of consumers who say their home has increased in value since they bought it rose to an all-time survey.

Since the survey began in 2010 when prices were falling, reaching an all-time high isn’t very impressive.fed_chairs

Consumers’ rising optimism about their personal financial situation also may foreshadow more positive housing sentiment. Those who say their income is significantly higher than it was 12 months ago increased 4 percentage points to a survey high of 28%, while those who say their personal financial situation has gotten worse within the last year declined to a survey low of 17%.

Are those good numbers?

Homeownership and Renting

  • The average 12-month home price change expectation fell to 2.3%.

Appreciation rates of 2.3% don’t sound particularly good. Over the long term, houses usually appreciate with the level of wage growth at about 3%; of course, most homebuyers expect houses to appreciate at about double that rate, so an expectation of 2.3% is about half of what potential buyers usually expect.

  • The share of respondents who say home prices will go up in the next 12 months continued its downward trend, falling to 42%. The share who say home prices will go down also decreased—to 8%.
  • The share of respondents who say mortgage rates will go up in the next 12 months fell by one percentage point to 54%.
  • Those who say it is a good time to buy a house fell to 67%, and those who say it is a good time to sell a house rose to 43%….
  • The average 12-month rental price change expectation decreased to 3.8%.
  • The percentage of respondents who expect home rental prices to go up fell to 51%.

Residential real estate rents will likely rise next year, defying expectations. The hedge funds are no longer buying houses and providing more supply, so demand will remain constant while supply drops causing rents to rise.for_the_family

  • Half of respondents thought it would be difficult for them to get a home mortgage today.
  • The share who say they would buy if they were going to move fell slightly to 67%.

The Economy and Household Finances

  • The share of respondents who say the economy is on the wrong track increased by 5 percentage points from last month to 59%.
  • The percentage of respondents who expect their personal financial situation to get better over the next 12 months dropped to 40%.
  • The share of respondents who say their household income is significantly higher than it was 12 months ago increased by 4 percentage point to 28%….
  • The share of respondents who say their household expenses are significantly higher than they were 12 months ago fell 2 percentage points to 36%.

Potential home buyers willing to take on 30-year mortgages generally have confidence in the economy, at least in the medium term. Potential buyers who are unsure about their jobs or unsure about future pay raises wisely chose not to take on onerous payment obligations such as 30-year mortgages.

Until potential home buyers gain confidence in the economy — not the artificial, government-spun confidence pushed on people over the last 6 years — until real confidence returns based on real and undeniable fundamental growth in the economy, potential home buyers will not be enthusiastic about housing — and they shouldn’t be.

Expect home sales volumes to be weak next year, perhaps higher than 2014, but probably lower than 2013, which wasn’t a great year by historic standards. We need real, fundamental growth in the US economy to jumpstart housing. Perhaps we will get that next year… or perhaps not.


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