The U.S. housing market, a subject of fascination and speculation for many, has recently seen a significant shift in public sentiment. Only 21% of U.S. adults currently perceive it as a good time to buy a house. This statistic marks a significant decline, down nine percentage points from the previous year's low. This is noteworthy as these are the only instances where less than half of Americans have perceived the housing market as favorable for buyers since 1978.
These recent findings stem from an annual Economy and Personal Finance poll. In contrast to the 21% who believe it's a good time to buy, a staggering 78% express that it is a bad time to purchase a house. This perception shift has been years in the making, influenced by various market fluctuations and economic factors.
The housing market sentiment was first measured in 1978, when 53% of the population believed it was a good time to buy a house. This figure rose to 67% thirteen years later and reached a record high of 81% in 2003. This period saw burgeoning homeownership rates and escalating housing prices.
However, the optimism began to wane as prices continued to rise, creating a so-called housing "bubble". From 2006 through 2008, the percentage of people who thought it was a good time to buy a house fluctuated between 52% and 58%.
The burst of the housing bubble in 2007 led to a decrease in home prices over the next two years, followed by a period of stagnation through 2011. This period of lower prices and generally low interest rates sparked a recovery in public optimism about homebuying, climbing to 71% in 2009 and holding in the high 60s or low 70s through 2017.
By 2020, however, the onset of the coronavirus pandemic and the resulting economic restrictions led to a record low of 50% believing it was a good time to buy a house. The subsequent surge in housing prices and the Federal Reserve's decision to raise interest rates to curb inflation over the past two years have rendered houses less affordable for many Americans, thereby causing views of the housing market to plummet.
This pessimistic perception of the housing market is pervasive among all major demographics, including region, urbanicity, homeownership status, income, education, and party identification. Within these categories, the percentage who believe it is a good time to buy a house ranges from 18% to 24%.
Not only are general perceptions of the housing market bleak, but expectations for local housing prices have also dwindled. In 2021, a peak 71% predicted local home prices would rise over the next year. The following year saw a similar expectation at 70%. These predictions generally held true as home prices reached record highs in the fourth quarter of 2022.
However, with the recent downturn in home prices in many areas, fewer Americans expect local home values to rise in the coming year. Currently, only 56% hold this view, while 25% believe prices will stay the same, and 19% anticipate a decrease. It's important to note that despite the declines, current expectations for home prices are still relatively high compared to periods following the burst of the housing bubble.
Regional variations and living conditions also influence expectations of local home price increases. Residents from different regions of the country have varying beliefs about the potential increase in local home prices over the next year. Specifically, residents of the Midwest are less likely than those in other parts of the country to predict a rise in home prices over the next year. This contrasts with residents from the West, South, and East, who hold more optimistic views about the potential increase in local home prices.
The type of area in which residents live also influences these predictions. Individuals residing in towns or rural areas are much less inclined than city or suburban residents to predict an increase in local home prices.
In terms of changes from the previous year, residents from the Midwest, West, and towns or rural areas have seen the greatest declines in belief that local home values will increase. On the other hand, Southern, city, and suburban residents show modest declines, while there has been no change among Eastern residents.
The prevailing sentiment is that fewer Americans than ever before believe it is a good time to buy a house. This negative outlook on the current housing market is relatively uniform across most subgroups of Americans.
This pessimistic outlook likely stems from the high prices and high interest rates that are combining to make mortgage payments less affordable. These attitudes may deter many prospective homebuyers from entering the market.
Nonetheless, real estate is still regarded by many as the best long-term investment over stocks, gold, and other options, even though fewer people hold this view than in recent years.
Even though only 19% of Americans expect home prices to decrease in the coming year, they are much less likely than in the past two years to expect prices to go up. Any stabilization or downward pressure on home prices could make houses more affordable for Americans, particularly if interest rates also stabilize or decline in the coming years. This complex interplay of market forces and consumer sentiment paints a picture of a housing market at a critical juncture, poised between past successes and an uncertain future.