Guess Who's Driving Confidence in the Housing Market Now
As the housing recovery continues, Americans are growing more confident in the housing market in general. And that confidence comes in part from a potentially surprising source: Millennial renters, who to date have been perceived by many as largely uninterested in and/or unable to attain homeownership.
But even as younger renters express a strong desire to one day buy a home, the question remains if they will be able to just yet, as difficult buying conditions persist. Millennial renters (aged 18-34) often%VIRTUAL-pullquote-"Cynics might argue that these results represent no more than youthful exuberance, or perhaps some naiveté, but that's missing the point."% have a lot of student debt and pay very high rents in many of the nation's largest cities, which can make saving for a down payment difficult. In addition, the inventory of the least expensive, entry-level homes is also tight, according to Zillow's August Real Estate Market Reports.
According to the second edition of the Zillow Housing Confidence Index, or ZHCI, overall confidence in the U.S. housing market is up, driven by a perception of strong current market conditions and strong homeownership aspirations among both current owners and renters. Confidence was tempered somewhat by general expectations for slower growth going forward.
The ZHCI, sponsored by Zillow and developed by Pulsenomics LLC, is measured on a 0 to 100 scale, with readings above 50 indicating positive sentiment. The headline index is comprised of three sub-indices:
- The Housing Market Conditions Index, or HMCI, which measures prevailing market trends and buying/selling conditions.
- The Housing Expectations Index, or HEI, which measures expected changes in home values, home affordability and the value of homeownership.
- The Homeownership Aspirations Index, or HAI, which measures household homebuying plans and attitudes toward the social value of homeownership.
The ZHCI rose to 64.2 over the summer, up from 63.7 in January, and housing confidence increased among residents of 11 of the 20 major metro areas surveyed. Both the HMCI and HAI rose in the most recent survey, to 62.1 and 62.7, from 60 and 62.4 in January, respectively. The HEI fell from January, to 66.1 from 66.3.
Consumers' expectations for more modest home value growth going forward are in line with Zillow's predictions for slower home value growth over the next year. The Zillow Home Value Forecast predicts home value growth of 3.1 percent through next August, down from 6.6 percent over the past year.
Among millennial renters (aged 18-34), 82 percent said they were confident or somewhat confident that they will be able to afford to own a home someday, compared to 64 percent of Generation X renters (those aged 35-49) and just 48 percent of Baby Boomer renters (aged 50-64).
Millennials overall were also far more optimistic about future home value appreciation. One-third of millennials (33 percent) said they expected home values to rise more than 6 percent per year over the next decade, compared to 21 percent of Generation X and just 15 percent of Baby Boomers.
"It's heartening to see younger renters express so much confidence in their ability to buy a home in coming years, because today's renters by necessity are tomorrow's buyers," said Zillow Chief Economist Dr. Stan Humphries.
"Cynics might argue that these results represent no more than youthful exuberance, or perhaps some naiveté, but that's missing the point. We need this generation to be confident and wanting to buy, regardless of the difficulties they face. And there are difficulties, including saving for down payments in the face of high rents and high student debt burdens, uncertain job prospects among younger workers and limited entry-level home inventory. But optimism is a necessary first step, and indicates a desire among a very creative generation to find creative solutions that will enable them to achieve homeownership," Humphries said.
In some ways, millennials' views toward housing in general may also be more conventional than older generations. Almost two-thirds (65 percent) of millennials said they agreed with the statement that owning a home is necessary to living the "good life" and is central to the American dream, compared to 56 percent of Generation X and 55 percent of Baby Boomers. Roughly 46 percent of millennials said they agreed with the statement that owning a home is necessary to be a respected member of society, compared to 38 percent of Generation X and less than a third (30 percent) of Baby Boomers.
For a full report on results from the latest Zillow Housing Confidence Index, please visit Zillow Research.