Earlier this week, a “rare bear” who caught national attention by accurately predicting the last housing crash in 2005 returned to the headlines. The famed money manager sounded the alarm that the current housing "valuation extreme" looks a lot like it is 2005 all over. And he used the b-word, cautioning homebuyers are again in denial of a bubble just as they were before 2007.
No doubt both bear and bull economists each have their own opinions on the subject. But, to the non-economist homebuyers, this is all just more conflicting noise that impacts their confidence and decision making.
Just last month, Fannie Mae’s Home Purchase Sentiment Index reported home-buying confidence had continued to decline. In ValueInsured’s latest Modern Homebuyer Survey conducted in Q4 2017, 63% of all interested homebuyers say if they were to buy a home today, they would be “buying high”. Americans are not completely in the dark, it appears; the majority may already know.
Among Millennials who want to buy their first home within the next three years, 67% believe if they were to buy today, they would be buying high. The anxiety of overpaying before a correction is not confined to novice homebuyers. 65% of all existing homeowners who wish to sell and buy another home believe the same.
In two states perennially considered most overvalued by CoreLogic and Fitch Ratings, 73% of both California and Washington states residents believe if they were to buy today, they would be paying too much.
While they might be rolling out the welcome mat, 62% of all homeowners nationally believe new neighbors who buy and move into their neighborhood now are “overpaying”; among homeowners who live in urban areas, that figure spiked to 68%.
Back to the question of whether homebuyers know they could be buying at the top before an impending correction, the latest market reports suggest existing-home sales are in fact slowing. The culprits of the latest declining sales – down 3.6% in December, far exceeding the initial estimate of -1.5% – were attributed to higher home prices and inventory shortage. For the buyers who are retreating from these high prices, and for potential home sellers who are not listing their homes at the fear of having to buy and overpay, it may be a stretch to conclude they know we are at the top of the market right now, but the fact is, they are staying on the sidelines. They don’t have the confidence to move ahead in today’s market.
Are these stories pointing out an elephant in the room or is it just the shadow of one that continues to hang over us from 2007? Well, there are new indicators that income growth in 2018 will not be enough to keep pace with rising home prices. There are also new whispers of recession concerns, led by Freddie Mac and echoed by other economists. The truth is: no one knows whether the “rare bear” or any other prognosticator is right about where housing is heading. And that is the point. When home buying is such an emotional event, even the slightest negative news can impact a potential homebuyer's decision to move. But with a renewed emphasis on innovative solutions, service and value in 2018, industry professionals who want to become real trusted advisors will have a significant advantage and be able to help homebuyers drown out all the noise, instill buying confidence and get them into the home they want.