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US home owners more confident than those who rent, new analysis suggests
Home owners in the United States are generally more confident than renters in their local housing market’s performance, according to the latest research from Zillow. But this confidence gap is widening in areas with rapid home value growth and narrowing in areas with more restrained growth, the firm says. Overall home owners have become more confident about their decision to invest in a home where home values in their area have increased more rapidly. By contrast, renters feel that they cannot escape renting and have lowered their aspirations for homeownership in areas where home values have increased more rapidly. Rapidly rising home values have powerful psychological effects on both home owners and renters and research has shown peoples’ expectations about the future are strongly anchored in recent experience. Rapid asset price growth can contribute to what has sometimes been labelled ‘irrational exuberance’, or overly optimistic and self-perpetuating positive feedback in price trends. Zillow’s Housing Confidence Index (ZHCI) is designed to be a forward looking measure of housing market health by gauging the beliefs and aspirations of home owners and renters towards the future state of the housing market. There are two groups, those that have experienced rapid recent home value growth in excess of 9% annually between July 2013 and July 2014, when the survey was last conducted, and those that have experienced more restrained growth of less than 9% over the same period. By this classification, nine metro areas have experienced rapid home value growth and in general, the ZHCI is higher for home owners than for renters. The firm says this is not surprising since, relative to renters, home owners typically have higher incomes and a more optimistic perspective about the economy and housing market. But as the economy has improved, the gap between home owners’ and renters’ confidence index levels has widened in metros where home value growth has been rapid, and narrowed in metros where home value growth has been more restrained. Home owners and renters have very similar perspectives on the overall housing market and the ZHCIs for both groups tend to move together. A larger improvement in outlook among renters is the primary driver of converging optimism levels in slow home value growth markets. But the opposite is true in markets where home values are growing more rapidly. In these markets, optimism levels are diverging. Because home owners’ wealth is largely tied to the value of their home, slower home value growth results in a smaller change in home owners’ housing market outlook. In markets where home values are appreciating at a slower pace, renters have become increasingly optimistic about their potential for future home ownership. The Home ownership Aspirations Index, which measures how optimistic owners and renters are about their future home ownership prospects, increased more for renters in slow growth markets than for home owners. But in markets where home values are rising rapidly, renters are becoming increasingly disillusioned, as they likely see the possibility for future… Continue reading
Property sales in England and Wales surged in October, according to latest index
The property market in England and Wales has shrugged off the general slowdown as sales surged 9% in October, according to the latest LSL/Acadata house price index. Prices were up 0.7% in October and 10.5% year on year but this annual figure drops to 5% if data from London and the South East is excluded. It takes the average house price to £277,390 and average house prices across England and Wales have reached a new record for the sixteenth successive month. The data also shows an uplift in activity outside of London has helped drive the highest number of completed home sales in seven years but prices have fallen at the top end of the London market. ‘This increased level of house sale completions marks a considerable, though laborious, reflection of the increased buyer activity earlier in the year since the recession zapped the energy from the market,’ said David Newnes, director of Reeds Rains and Your Move estate agents. ‘October saw the highest level of house sales completed in a month since November 2007. In part this was driven by a better throughput of sales that had sat in the pipeline for some time, finally coming through to completion,’ he explained. ‘On a monthly basis, house price inflation has edged up from just a 0.3% increase in September, as we see some modest growth. Recent hiccups in the market have not shaken the overall underlying stability and the average UK home owner has seen the value of their property rise £26,500 or 10.5%) in the past year,’ he explained. He also pointed out that the biggest uplift in completions in the third quarter of 2014 compared to the same period of 2013 has been witnessed outside of London. Indeed, completed house sales in both the West Midlands and East Midlands have risen 22%, while in London house sale completions are up by just 3% over the same period. In regions such as the North and East Anglia, which saw average house prices slump during September, further growth in activity is critical to warm up the local recovery. First time buyers in particular need shielding from any future cooling interventions from the government or Bank of England. However, the regions have seen a more complex path of growth. Only three regions saw house prices set peak highs. These were the South West, South East, and London as the recovery continues to advance with a Southern leaning slant. ‘If we omit London and the South East from our calculations, a milder 5% annual change in property prices emerges. Yet at the very top end of the housing market in prime central areas of London, growth is subsiding. Average house prices across London overall rose by only 0.4% in September, the smallest monthly increase the capital has seen for 15 months as the pace of price inflation cools down from the summer heat,’ said Newnes. ‘Property prices have dropped in six out of the seven most expensive boroughs over… Continue reading
US housing market not set to normalise for at least three more years
Real estate professionals in the United States, including economists, agents and investment strategists, don't expect the housing market to normalise for at least three more years. The majority of the panellists on the Zillow Home price Expectations Survey predict that home values will end 2014 up an average of 4.8% from 2013, to a median value of $176,760. On average, respondents said they expect home values to exceed their pre-recession peak in February 2018 and in the longer term, respondents are most concerned by low household formation rates, would be first-time buyers in a weak financial position and demographic changes that are affecting the housing market. So shifting demographics and would be first time buyers financially ill prepared to buy will continue to hold back the housing market over the next several years. However, despite these hurdles, nearly all of the 107 panellists surveyed said they expect the housing market to normalise within the next five years. The report suggests that people are delaying home purchases both for financial reasons, as high rents make it difficult to save, and because they are generally waiting longer to marry and have children. Also, because rent is so high, many renters are forced to find roommates to share the costs, and more than a third of U.S. adults are living with a roommate, up from a quarter in 2000. As a result, household formation rates are well below average, slowing the housing market's recovery. Additionally, those near retirement age are staying in their homes longer rather than selling and downsizing or renting. Those two demographic factors are contributing to a falling homeownership rate and tighter than normal inventory levels, respectively, and are among the reasons experts say the market is being held back from a full recovery. ‘We've reached a point in the recovery where the only real cure-all is time. The market remains very challenging for younger, first time home buyers who face an uphill battle saving for a down payment, qualifying for a mortgage and finding an affordable home to buy,’ said Zillow chief economist Stan Humphries. ‘At the same time, many older homeowners are trapped underwater or are unable to find buyers for their homes. But the landscape is slowly changing, as incomes begin to grow, negative equity fades and new households start to form. These shifts won't occur overnight, but they are happening. Patience will be a virtue over the next few years as we wait for these traditional fundamentals to more fully take hold in the market,’ he pointed out. Asked when they expect the US housing market to normalise, 30% of panellists said they expected the market to stabilise one to two years from now, and 40% said it would take three to five years. Almost 20% said they believe the market either already has returned to normal, or will in the next 12 months. Panellists said they expect US median home values to rise 4.8% in 2014, on average, to $176,760, and another 3.7% in 2015. Panellists… Continue reading
