The housing market is red hot right now. This is not news. Home price records are smashed in markets large and small across the nation. The CoreLogic Home Price Index predicts the strongest home buying season in recent memory. Amid positive jobs and economic reports, and to get ahead of the impending Federal Reserve interest rate hikes, many Americans are rushing to buy a home.
So for those of us who work in the housing industry, our job is done, yes? Homes will almost sell themselves when they are in such high demand with low inventory.
Not so fast. We want our customers to buy, to energize the housing market, most importantly, we want our customers and their family to be able to live in the homes of their dream. But we want them to so while feeling empowered, secure, without worries.
What has been somewhat over-shadowed by the red-hot housing headlines are reports of unsustainable home prices, often by the same industry experts and forecasting models. According to the latest report by Fitch Ratings, home prices in Dallas are 10% –14% higher than what the market can sustain based on its economic fundamentals including population growth and inflation-adjusted income growth. Many of the largest and hottest real estate markets in the country are also over-heated by estimated 5% to double-digit percentage levels.
In ValueInsured’s latest quarterly Modern Homebuyer Survey, 3 out of 4 interested homebuyers– prospective homebuyers who plan to buy within the next 24 months – said they would buy a home sooner if they could have more confidence they would not lose their down payment after they buy, in the event home prices go down and they need to sell their recently purchased home resulting in a loss. These homebuyers appear cautious, but certainly not paranoid, considering Fitch’s report above, and considering the highly mobile and nomadic world we now live in when Millennials change jobs on average every 2.8 years according to the latest U.S. Census Bureau report. Specific findings from ValueInsured’s survey include:
- 74% of existing homeowners want to upgrade to a new home.
- 83% of renters want to buy their first home.
- 69% of likely Millennial first-time homebuyers (Millennials who currently rent but plan to buy in next 24 months, and can afford the down payment) would buy sooner if they could have more confidence in the housing market.
- 66% of likely Millennial first-time homebuyers would buy sooner if they could have more confidence they would not lose their down payment investment, even if the market goes down and they have to sell later at a loss.
- 75% of all combined likely upgrade buyers and first-time homebuyers would buy sooner if they could have more confidence they would not lose their down payment investment, even if the market goes down and they have to sell later at a loss.
Even in the current bullish housing climate, homeownership rate is still at historic low. For every homebuyer participating in a bidding war, there are more staying on the sidelines, concerned about buying too high, and waiting for the market to have a correction. Truth is, buying a home is historically an excellent investment; but the market goes up in peaks and valleys, not in a perfectly straight line pointing upward. Homebuyers always ask, “is this a good time to buy?” Another truth: it is always a good time to buy if it is a home suitable for your family, but, no one has a crystal ball to know if and when prices will go down temporarily after you buy. When homebuyers are given the reassurance that they could buy sooner without losing their hard-earned down payment when there is a price correction, that’s when we have done our job and served them well.