93% of 18-34-year-old renters plan on buying a house some day? 72% of them say owning a home is part of their personal American Dream? So says Trulia’s American Dream Survey. Does this finding oppose Brian Chesky’s prediction that in the future we’d live in a mobile society wherein few people actually own a home? Perhaps.
Americans More Bullish on Buying Homes
As 2012 wraps up, the housing market is looking up on all fronts. It was the first year since 2006 in which home prices will have increased. In addition, construction and sales are both significantly up from their lowest point during the housing crisis, and vacancies, delinquencies, and foreclosures have all come down. Key for the housing market, job growth has picked up, and unemployment has fallen to 7.7% from 8.2% six months ago and 9.8% two years ago. These trends all give consumers more buying power and more confidence in the economy.
As a result, consumers are increasingly bullish on buying homes. More than 1 in 4 Americans (27%) are more positive about homeownership than they were six months ago, compared with 19% who reported feeling more negative about homeownership. That translates into more renters being eager to buy in the next two years:
% of renters planning
to buy in next two years
But homeownership still has its skeptics. In November, 72% of consumers said that homeownership is part of their personal “American Dream.” That’s unchanged since May and up a bit from 2011, when 70% of consumers said so in our January and August surveys. But fewer consumers today believe in homeownership than in 2009 and 2010, when 76% and 77% (respectively) agreed. Will this sentiment bounce back, or has the housing crisis permanently taken the dream of homeownership down a notch? Only time will tell.
Millennials and the Housing Bust: Shaken, Not Scarred
The housing crisis looms especially large for younger adults–those aged 18-34 years old–who’ve only been thinking seriously about housing in these recent years of boom and bust. They have no memory of the decades when home prices rose modestly but steadily, or when mortgage rates were 7%, or up to 10%. These younger adults had a particularly rough recession: their unemployment rate peaked at 10.6% in October 2009, compared with 10.0% for adults overall, and many put off the decision to buy or rent their own home, and instead doubled up with roommates or lived with parents. This age group really matters for the housing market: their decisions about forming households and homeownership directly affect housing demand.
Our survey shows these Millennials haven’t been permanently scarred by the recession. Few have written off homeownership. Among 18-34 year-olds, 72% say homeownership is part of their personal American Dream–same as for the adult population overall. And the vast majority of young renters plan to own: 93% of 18-34 year-old renters plan to purchase a home someday. Older renters are more likely to say they’ll never buy than these young renters are. And, 43% of these younger adults are homeowners already. That leaves very few young adults who rent today and plan to rent forever.
However, despite these long-term aspirations, younger adults see a very different near-term housing market in their crystal ball. Consumers, regardless of age, expect both rents and housing prices to rise in 2013; they also expect more inventory, both for rent andfor sale, and higher mortgage rates:
% expecting increase
% expecting decrease
(increase minus decrease)
Note: respondents could also answer “no change” or “not sure”.
Younger adults, though, have a harder time imagining price increases and higher mortgage rates than older adults who have lived through more years of rising prices and high rates. Just 37% of Millennials expect prices to rise in the next year, and 22% expect prices to fall:
% expecting prices to rise next year
% expecting prices to fall next year
Note: respondents could also answer “no change” or “not sure”.
They’re also much less likely than older adults to expect higher mortgage rates: among 18-34 year-olds, 32% expect rates to rise next year and 20% expect lower rates next year. That means younger adults may be in for a rude awakeningwhen they try to buy. With lower expectations about prices and mortgage rates, Millennials have higher hopes than older adults that homeownership will remain relatively affordable. Today’s young renters may be overestimating what they’ll be able to afford to buy when their time comes.
Rising Prices Will Encourage Sales in 2013
Nearly one third of renters want to buy in the next two years–but will they find homes for sale? In 2012, inventory was down 23% nationally year-over-year, and down 43% since the summer of 2010, according to the Department of Numbers’ HousingTracker. Much of this decline is thanks to fewer foreclosed homes on the market. In 2013, two forces could add to inventory, expanding the options for would-be buyers: (1) more construction of new homes, and (2) more homeowners selling existing homes. Our American Dream survey shows that rising prices in 2013 could trigger more sales–and therefore bring more inventory onto the market.
Among current homeowners, 22% said they are somewhat likely, fairly likely, or extremely likely to sell their home in the next year. Who’s going to sell in 2013? Based on our survey and local market conditions, the homeowners more likely to sell next year are those who:
- Can sell at a profit. Based on when respondents told us they bought their current home, and the sales-price trend in their metro area (according to FHFA), we estimated whether each respondent’s home is worth more or less today than when they bought it. Among those whose homes are worth more today than at purchase, 28% say they’re at least somewhat likely to sell in the next year, compared with 21% of those whose homes are worth less today than at purchase (among those who bought a home in the last ten years). The chance to make a profit will encourage some homeowners to sell.
- Expect prices to rise. Among people who expect home prices to rise in the next year, 30% plan to sell in 2013, compared to 24% of those expecting prices to fall in the next year (again, among those who purchased in the last ten years). Homeowners who expect prices to rise are more likely to take advantage of those gains by selling.
- Bought very recently. People who bought a home in 2010, 2011, or 2012 are the most likely to sell next year: 33% say selling is at least somewhat likely. Are these recent buyers fed up with their home? No. Rather, we estimate that those who bought during those years are much more likely (72%) to have seen their homes appreciate in value since making their purchase than buyers in 2007-2009 (7%), or in 2003-2006 (49%). Therefore, 2013 might see a lot of new homeowners flipping their recent purchases.
Year Home Was Bought
2002 or earlier
% at least “somewhat likely” to sell in 2013 (survey response)
% whose homes today are worth more than at purchase (Trulia estimate)
If prices rise in 2013, more people will be encouraged to sell. But prices and market trends aren’t the only factor that determine
swho sells. Many personal reasons go into the decision whether to stay put or move. In fact, family is the top reason why homeowners might sell next year:
But economics still matter. A stronger economy could give more people reason to sell since they might find a new job worth moving for. During the recession, Americans became less mobile than usual, but as the economy recovers, more might move for job opportunities.
Consumers are entering 2013 more optimistic about the housing market. More renters plan to buy, and more homeowners will sell, especially if prices continue to rise. The housing crisis still hangs over the market
– especially for Millennials, who are more doubtful than others that home prices or mortgage rates will rise. But if consumers actually do what they say they will do in the next year, 2013 will be another year of housing-market recovery.