A Look Ahead at Buying Homes

The majority of Americans believe that home prices will either hold steady or increase over the next year but one-third said they would be more likely to rent their next home if they were to move. This view could hold back the housing recovery for the time being, but in the long term lead to a stronger marketplace, said an executive with Fannie Mae, which conducted the survey.

Doug Duncan, chief economist for the government-sponsored enterprise, said the results show Americans have returned “to a more balanced and realistic approach toward housing. While this will likely weigh on the housing recovery in the near term, it should, over time, help to build a stronger and healthier market focused on sustainable homeownership.”

The chief executive of the Lenders One Mortgage cooperative, Scott Stern, also thinks in the long run the levels of homeownership should return to the norms seen during the days when conforming loans were the dominant product on the market.

As loose as the past five years were in terms of underwriting, the next three to five years could be very restrictive, especially where loan-to-value ratio and credit score are concerned.

Meanwhile, while Lenders One had its highest level of closings of all time in August due to refinancings, it was not as high as it could have been, and Stern attributes that to borrower fear.

Borrowers are concerned about applying for a loan, as they fear calling their lender and they fear being rejected because of the stricter underwriting standards, he said.

The results regarding Americans’ view of home price movements, Stern added, shows that the U.S. is no longer a single market, but rather hundreds of smaller markets that behave differently.

Just under half of the respondents, 46%, said they believed home prices would remain steady, with 31% believing they would increase. This is a shift compared with the results of a similar survey in January, when only 36% said they believed home prices would hold steady and 37% said they would go up.

As for the prices of rentals, 46% said they would stay the same and 39% said they would go up.
But the one-third who said they were likely to rent is an increase of three percentage points from the results of the January survey.

While two-thirds of respondents believe that housing is a safe investment, this is 16 percentage points lower than a similar survey in 2003 found.

Splitting the respondents out, among those considering housing a safe investment are 74% of mortgage borrowers, 69% of underwater borrowers, 57% of delinquent borrowers and 54% of renters. The last two categories are down by eight and seven percentage points, respectively, from the January survey.

The number of renters who said they would be more likely to buy a home in the future was 37%, down seven percentage points from earlier this year. Among delinquent borrowers, 52% said they are more likely to buy a home in the future, down four percentage points.

More than 70% said they think it will be harder for the next generation to buy a home, up three points from the January survey.

Consumers believe it is a buyer’s market out there, with 70% saying it is a good time to purchase a home and 83% believing it is a bad time to sell one.

While 54% of the general public believes obtaining a mortgage today is difficult, 65% of African-Americans and 72% of Hispanics had a similar response.

Three-quarters of both African-Americans and Hispanics said they believed owning a home is a good way to build up wealth which could be passed along to their families, compared with 58% of the general population.