Are We Living in a Renters Nation?

 In a recent survey reveals optimism about homeownership rebounding as the housing market recovers.  This includes young adults who were often pegged as home renters during the great recession. In the meantime, rising prices may encourage some homeowners to sell in 2013.  The survey shows that today’s consumers are more optimistic about the housing market and more ready to buy a home.  The housing bubble burst has shaped the near term expectations about the market in general. Also, nearly all young renters want to buy a home in the long run. These consumers expect inventory to grow, and it looks like it may happen starting this year as long as prices stay on the rise. As price gains begin pushing more homeowners into a positive equity position, more will be ready to sell.

As 2012 came to a close, the DFW real estate market was looking up on all fronts. It was the very first year since 2006 in which home prices have increased. Both new construction and sales were both up significantly from their lowest point during the housing crisis. Vacancies, delinquencies, and foreclosures have come down. Job growth has strengthened, and unemployment has fallen. These trends give home buyers more buying power and confidence in the economy as a whole.  At the same time both DFW short sales and Dallas foreclosures have declined.

Consumers are becoming increasingly bullish on buying homes. More than 27% of them are more positive about homeownership than they were six months ago. This translates into more renters being eager and willing to buy a home within the next two years:

The housing crisis looms especially for younger adults who are between the ages of 18 & 34 who have only been thinking seriously about home ownership in the recent years of boom and bust. They have no memory of the decades when home prices rose modestly but steadily, or when mortgage rates were 7%. These younger adults had a challenging time in the great recession. Their unemployment rate was very high and many of them put off their decision to buy or rent their own home.  Instead doubled up with roommates or lived with parents. 

Consumers, regardless of age, expect that both rents and housing prices will rise in 2013; they also expect more home inventory, both homes for rent and for sale along with higher mortgage rates. Younger adults have a harder time imagining price increases and higher mortgage rates than older adults who have lived through more years of rising prices and high rates.  Many have higher hopes than older adults that homeownership will remain relatively affordable. Today’s young renters may be overestimating what they’ll be able to afford to buy when their time comes.

Rising Home Prices Will Encourage Sales in 2013. Nearly one third of renters want to buy in the next two years but will they find many homes for sale? The survey shows that rising prices in 2013 could trigger more sales–and therefore bring more inventory onto the market. Among current homeowners, 22% said they are somewhat likely, fairly likely, or extremely likely to sell their home in the next year. Who’s going to sell in 2013? Based on the survey and local market conditions, the homeowners more likely to sell next year are those who:

• Can sell at a profit. Based on when respondents told us they bought their current home, and the sales-price trend in their metro area (according to FHFA), we estimated whether each respondent’s home is worth more or less today than when they bought it. Among those whose homes are worth more today than at purchase, 28% say they’re at least somewhat likely to sell in the next year, compared with 21% of those whose homes are worth less today than at purchase (among those who bought a home  in the last ten years). The chance to make a profit will encourage some homeowners to sell.

• Expect prices to rise. Among people who expect home prices to rise in the next year. Homeowners who expect prices to rise are more likely to take advantage of those gains by selling.

• Bought very recently. People who bought a home in 2010, 2011, or 2012 are the most likely to sell next year. Therefore, 2013 might see a lot of new homeowners flipping their recent purchases.

If prices rise as expected in 2013, more home owners will be willing to sell. But prices and market trends aren’t the only factors that determine who will sell. Many times personal reasons go into the decision whether to stay or move. Family is the top reason why homeowners might sell next year. But economics will still matter. A stronger economy could give more people reason to sell since they might find a new job worth moving for. During the recession, Americans became less mobile than in past times, but as the economy recovers, more might move for job opportunities.

Many consumers are more optimistic about the housing market going forward. More renters plan to buy, and more homeowners will sell. The housing crisis still hangs over the market in many regions of the country where consumers are more doubtful than others that home prices or mortgage rates will rise. But if consumers actually do what they say they will do in the next year, 2013 will be another year of housing market recovery.