The Great Recession and Attitudes Toward Home-Buying
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Title: The Great Recession and Attitudes Toward Home-Buying
Author(s): Gary V. Engelhardt
In the last few years, Americans have experienced the most severe housing-market downturn since the Great Depression. The national homeownership rate during this period has declined from a peak of 69 percent in 2004 to 66 percent presently. Unemployment is high, income growth is stagnant and home sales are low. Indeed, in this environment, many have questioned whether the American dream of homeownership has ended.
This report utilizes data from the University of Michigan's Survey of Consumer Attitudes to examine consumer attitudes toward homeownership before, during and after the financial crisis. In particular, it measures the extent to which the recession has changed consumer sentiment toward home buying and selling.
There are a number of principal findings:
- Despite high unemployment, slow economic growth and problems plaguing the economy, almost 80 percent of American households believe that now is a good time to buy a home.
- Positive sentiment is strong particularly among young, educated, white and Hispanic households, and is attributable to low house prices and low mortgage interest rates.
- The pattern of home-buying sentiment during the current recession looks similar to the pattern from past recessions. In fact, current positive home-buying sentiment is around its long-run average level.
- What is different about the current recession is that positive home-selling sentiment is at an historic low. Indeed, the sell-side of the market is dominated by deeply negative sentiment.
- Negative home-selling sentiment is strongly related to difficulty in finding buyers at desired sales prices, as well as the large overhang of mortgages past due or in foreclosure.
- Over the last two decades, the value of mortgage purchase originations has tracked home-selling sentiment more strongly than home-buying sentiment.
- Favorable sentiment and real activity in the housing and mortgage markets will be weighed down significantly until the overhang of troubled mortgages is cleared out.
- Over the next five quarters, positive home-buying sentiment is forecast to remain around current and long-run average levels. In contrast, positive home-selling sentiment is forecast to remain around current and historic-low levels. This suggests that selling sentiment and, hence, market activity, will remain sluggish in the near term.