Millennial homeowners among most eager to sell before prices fall, signaling more starter homes could enter market, according to ValueInsured’s Modern Homebuyer Survey

Seventy-five percent of Americans believe their local housing market is “cooling off” – among them, 72 percent say they are not surprised – according to results from ValueInsured’s Q4 2018 Modern Homebuyer Survey, released today.

This shift in market perceptions follows five consecutive quarters where majority of Americans believed housing was overheated.  Among states with the most robust home sales activity, 22 percent of residents in California, 19 percent in Colorado, 36 percent in Texas, and 22 percent in Washington say their local market is not cooling.

The ValueInsured Housing Confidence Index registered at 63.0 on a hundred-point scale for all Americans in Q4, down 4.7 points in one year. Homeowners, historically the most confident segment on the Index, produced a score of 71.6 in Q4, the second-lowest level recorded in thirty months.

You may have heard the term “crying it out” or “CIO”; if you haven’t, your Gen-X and millennial clients with young families most certainly have. But we’re not here to discuss parenting or sleep-training tips. There is a new trend in housing: increasing number of millennial and Gen-X homebuyers are now “waiting it out”.

With ever more purchase hurdles, first-time buyers hopefuls are pushing limits as to how far they are willing to go to become homeowners. Eating daily ramen noodles, delaying family formation and co-living with strangers from Airbnb are all so yesterday. The latest sacrifice? Living in a haunted house. Seriously …

Americans do not expect all home buying to come to a halt just because rates are moving higher. They recognize most will still want to pursue the American Dream of owning a home, despite higher rates being another barrier. Overall, just over half (53%) expect higher mortgage rates to lower buying demand in their local neighborhood, or to drive down buyers’ budget. Millennials, who are more price-sensitive and less averse to renting, tend to attribute more negative housing market impact to rising rates, while suburban homeowners tend to expect more muted impact in their neighborhood.

Considering a home is the most valuable asset in most American households, it’s logical to assume homeowners have strong affinity and appreciation for those who help safeguard this asset. However, a latest study shows homeowners have lukewarm opinions of their agent, with over 4 in 10 expressing unflattering or indifferent attitudes toward those who advise them on how to protect their home.

With rising home prices and mortgage rates, millennial homeowners are staying longer in their starter homes, many against their wishes to upgrade. According to the latest ValueInsured Modern Homebuyer Survey conducted in Q3 2018, 85% of all millennial starter-home owners wish to sell and upgrade to another home, but 78% are hesitant and have not made the move as they worry they could be buying high.

Ten years after the financial crisis, U.S. unemployment rate has dropped from an alarming 10% to the current level of 3.9%, a near-record low. However, the encouraging statistic may not necessarily translate to caution-free spending, at least not when it comes to buying a home. A latest survey of potential homebuyers suggests job insecurity is one of the most-cited reasons that keep Americans from pursuing the home of their dream.

It depends on where they serve. According to ValueInsured’s Modern Homebuyer Survey conducted in Q3 2018, nearly 7 out of 10 (69%) urban homeowners in America today do not expect their local firefighters and teachers to be able to afford to buy a home near where they serve.

As we all know, the market is psychological. How consumers feel about the market affects how they ultimately behave in it.   

In the latest ValueInsured Modern Homebuyer Survey, Americans were asked how they fare in this current housing market.

2017 has been called the most competitive home-buying season ever and the strongest seller's market ever. However, recent reports tell a different story. In San Diego, 20% of all listed homes had a price cut in June. In Seattle, where bidding wars had become the norm in the past three years, market watchers are starting to see 6-figure price drops for median-price homes. In Dallas, 19% of all listed homes had seen their prices cut at least once in June. These are previously unheard off in recent years. Homeowners, who are typically more informed and aware of the latest market conditions in their neighborhood compared to new homebuyers, appear to have taken note according to the latest ValueInsured Modern Homebuyer Survey.

In the latest ValueInsured Modern Homebuyer Survey conducted in Summer 2018, 65% of all American homeowners believe the housing market is near its current cycle peak and 63% believe there will be a price correction in their area within two years – the highest levels recorded for both measures since the inception of the quarterly national survey in Spring 2016.

Given that similar correction concerns have been reported recently by The Washington Post, CNBC, Bloomberg, and Forbes, among many others, this declining homeowner confidence in home value sustainability is not news. What has not been examined more closely, however, are the potential catalysts for the pending correction.

America's attitude towards home-ownership is changing. Only 48 percent of millennials (age 21-36) believe that buying a home is a good investment, according to the latest ValueInsured Modern Homebuyer Survey. That's a record low, according to the report, and a sharp contrast to the previous high of 77 percent just two years ago.

In ValueInsured’s latest Modern Homebuyer Survey, millennial homeowners reported concerns for housing overvaluation, and rising pessimism for home price futures. One would expect millennial homeowners – being in the enviable position of owning in this seller’s market – to rejoice at rising home prices, but their reported sentiments tell an opposite story. Any rise in their home equity wealth on paper is negated by their concern for a pending correction, and the worries that they could be “buying high” if they were to upgrade now. The result? inventory shortage particularly for starter homes.

"Wealth in 2016 of the median family headed by someone born in the 1980s remained 34 percent below the level we predicted based on the experience of earlier generations at the same age," the authors write. "The corresponding shortfalls of the 1960s cohort (–11 percent as of 2016) and the 1970s cohort (–18 percent) are worrying but are much smaller than their respective 2010 and 2013 shortfalls."

The study found that the typical millennial family lost ground between 2010 and 2016, falling even further behind the typical wealth life cycle. The authors say this represents a missed opportunity because asset appreciation is unlikely to be as rapid in the near future as it was during the recent period.

Perhaps because of this trend, millennials’ view of buying a home has turned negative, according to a survey by ValueInsured. In the third quarter of this year, only 48 percent of all millennials said buying a home in America today is a good investment, a record low.

That's down from 54 percent in the second quarter. The previous high was 77 percent two years ago.

ValueInsured CEO, Joe Melendez, joins John Sanchez to discuss ValueInsured's latest research on the millennial housing market.

Millennials’ housing confidence and enthusiasm plummet to record low in latest ValueInsured Modern Homebuyer Survey

DALLAS, August 15, 2018 – Millennials’ perceived value in buying a home dropped below 50 percent, down significantly from post-Brexit high, according to the latest ValueInsured quarterly Modern Homebuyer Survey

“The first one I saw and I knew it was the one…” may be a line you would hear in a movie, but it is unlikely how a homeowner would describe his or her home buying experience, and certainly not in 2018.

In this competitive housing market where homebuyers are accustomed to compromises and disappointments, most buyers need to tour over a half dozen homes – often after viewing many more online – before finding the right one, according to latest findings in ValueInsured’s Q2 2018 Modern Homebuyer Survey.

We know this is true: Americans have a strong desire to become homeowners (79% among non-homeowners, according to the latest ValueInsured Modern Homebuyer Survey) and the next generation continues to view homeownership as an important part of their American Dream (78% among millennials). However, increasing evidence shows they may not enjoy the process of actually buying a home.

After months of upward trends, home mortgage rates have retreated somewhat and are currently at an average of 4.39 percent for a 30-year fixed loan, lower than levels in June. However, after two benchmark rate hikes already this year, two more are signaled by the Federal Reserve and are expected by top analysts for 2018, meaning current mortgage rates most likely could increase again. 

In ValueInsured’s latest Modern Homebuyer Survey, over 3 in 4 Americans (76%) believe mortgage interest rates will continue to go up in 2018. Nearly 6 in 10 (59%) predict an average 30-year fixed rate will reach 5% by the beginning of 2019, and 13% Americans expect to see 6% 30-year mortgages by the end of 2019.

A realtor we know recently said this: “All homebuyers have buyer’s remorse at some point during the pre-closing escrow period. I never not hear from a buyer after contract signing and before the home closing, some wonder if they paid too much, others may ask if I read a recent article about the market potentially turning.” In a survey conducted last year, Trulia found nearly half of all Americans have buyer’s remorse about the home they bought.

Now, with stakes ever higher in this expensive market, where home payments in some areas are swallowing up 45% of local median income, expectation of buyer’s remorse is high.

You may have noticed many more reports about rising debt, delinquencies, inflation and risk of an associated recession.  Curious ourselves, we thought we'd put things into context (you have to be concerned with fake news, right)?  And it was interesting. 

If you just follow housing, you may have positive or negative feelings about the market trends, but to get the full picture, you cannot isolate just that one expenditure.  You have to look at similar debts like student loans, car loans and credit cards (and rising delinquencies).  Put together, we are now at similar debt levels as 10- years ago.  So, when a buyer is thinking about buying a home, they are also thinking about all of these other debts and expenses. 

And then there is inflation.  It has been whispered about for a while, but it may become a roar in the near future. This is a great article on why you should keep an eye on it (just ignore the sales pitch at the end).

Since its inception in Spring 2016, ValueInsured’s quarterly Modern Homebuyer Survey has reported shifts in homebuyer attitudes and confidence; however, one thing has remained constant: Millennials’ strong desire to own home, currently at 77%. At the same time, Millennial homeownership is now at the lowest level – at 35.3% – since the U.S. Census began tracking homeownership by age groups in 1982.

While Millennials enjoy strong employment in this robust economy, many are not saving enough of their paychecks for a home. Today, Millennial homeowner hopefuls are paying for $5 coffees (sometimes three of these daily) and $900 cell phones. According to a recent study, 53% of Millennials spent recently on an Uber or taxi ride, and 73% on a music, sporting or other live entertainment event. 79% spent to dine at a hot restaurant in town. So, it is not surprising that according to the latest Q2 ValueInsured Survey, 72% of all millennials who wish to buy a home save less than $250 a month. 

Home buying has become intensely competitive in some of the nation’s top markets. Over 1 in 3 homebuyers made an offer on a home last year sight unseen, while home sellers are expecting shorter closing windows and more lenient closing terms. None of these is news. Now, we have another new data point.

According to ValueInsured’s latest Q2 2018 Modern Homebuyer Survey, 21% of all surveyed homebuyers have experienced a failed sale transaction due to what they consider to be “unrealistic seller’s demands,” including waiving contingencies, cash-only offers, and fast closing. 26% of millennial first-time homebuyers and 30% existing starter-home buyers surveyed report to have experienced these sellers’ demands that they believe to have derailed a potential sale.

MBA Insights interview with Joe Melendez, co-founder and CEO of ValueInsured, Dallas, a provider of down payment protection.

In the past two weeks, several housing headlines caught the eyes of many. MarketWatch printed “Thinking of selling your home? Do it before 2020, economists say”. Citing housing experts, Zillow released a Home Price Expectation Survey where it is predicted that the Next recession will begin in 2020. CoreLogic reported “More than half of US housing markets were overvalued in April”. Chief economist of NAR warned the current run-up in home prices is not sustainable, which is then echoed by a separate study and yet another bearish headline of unsustainable home price gains by Black Knight.

Not trying to be a downer here, but these chorus of consistent headlines are the elephant in the room and hard to ignore. So let’s address it.

Borrower confidence can be enhanced by creating a safety net to guard against the unexpected.

By Joe Melendez, CEO ValueInsured

Homeowners now have a new reason to refinance, and it may just be the secret weapon the mortgage industry needs to survive this alarming refi drought. Home prices have reached record-high in many top metros, but if you have paid attention to any local realtors, to CoreLogic, or to housing experts and economists here, here, and here, many of these markets are overvalued and are expected to correct. In ValueInsured’s latest quarterly survey, 68% Americans believe a housing correction will happen within 2 years. Interestingly, the consumer survey was conducted before releases of the Zillow and Wall Street Journal economist panel reports, but their prediction timeline mirrors those of the experts’.
 
Historically, homeowners’ choice when faced with a potential correction is to sell (but then where would they live?), or to stay put and risk watching their home value depreciate in the near future. Those are hardly good options and the bottom line is, the homeowner themselves have little to no control.
 
Now, they have a third option…

Hosted by Chuck Jaffe, Senior Columnist for MarketWatch with Joe Melendez, CEO ValueInsured

The CEO of ValueInsured, Joe Melendez, appeared on the daily talk show The Money Life Show to discuss findings from the ValueInsured Modern Homebuyer Survey.  Hosted by Senior Contributor for MarketWatch Chuck Jaffe, Joe was asked about today's homebuyers and their motivations.  

It is quite a conundrum for millennials in this housing market. Majority who wish to own cannot afford to buy. Of the few who could, over 8 in 10 wish they bought a different home and want to move. 74% of them say now would be a good time to sell, but they can’t because prices to buy another home is too high, so they wait and try to time the market. It appears that for millennials, once you finally achieve the American Dream, there’s an obstacle course right around the corner, just in case you thought you could catch a breath.

This was an interview originally recorded on The Jon Sanchez Show - May 22, 2018 

Jon Sanchez:  All right. Let me tell you what we have lined up tonight. Got a great show lined up. We're, we're fascinated about having this guest on. His name is Joe Melendez. He's the CEO of a company called ValueInsured. If you want to look up more information before he joins us after the first break, ValueInsured.com. Now what his organization does is somewhat revolutionary. I am not aware of anybody else that does this. Maybe there's some other competitors out there, but as you will learn among many other things, but the primary reason we're having him on is, his company ValueInsured will insure your down payment.  Now, let me repeat that. His company will insure your down payment, so we all know of course, after the financial crisis, right? People said I had to short sell my house or foreclose on my house, got foreclosed on, etc. Cory, correct me if I'm wrong, as a real estate broker, you probably didn't get too many people saying "geez, you know, my house was worth X at the peak and I had a short sale" or you know lost it and it's then worth Y. They're saying, "hey, you know what? It's that down payment that I put into that house that's gone." That seems to be the part of it that hurts people the most from a psychological standpoint. 

Cory Edge:  Well I think so. And if you remember back to those days, that was one of those quirks, there were zero down loans. There were loans that not only were the zero down but you got money at closing. Yes. So nobody had skin in the game and so they felt that hurt a little bit but not enough. So now they're back to the down payment. Exactly. which is a perfect. And you know, we have a million questions for how you insure people's down payments. Yes. But if it works and if it's a good system, it makes sense because that is the pain that people feel. That's right because that's real money that they used.