Buyers Optimistic, Sellers Concerned About Timing

According to a new study from the Mortgage Bankers Association, prospective homebuyers believe now is a good time to buy, considering the current low home prices and low mortgage interest rates, but potential sellers are almost unanimous state that it is not a good time to sell a home, based on the difficulty in finding buyers at desired sales prices. The study entitled “The Great Recession and Attitudes Toward Homebuying” (conducted by Gary V. Engelhardt, Professor at Syracuse University and sponsored by MBA’s Research Institute for Housing America), uses 30 years of data from the University of Michigan’s Survey of Consumer Attitudes to examine consumer attitudes toward homeownership before, during and after the most recent recession to see if consumer sentiment changed toward home buying and selling. Key findings of the study include:

• Despite high unemployment, slow economic growth and other problems plaguing the economy, almost 80 percent of American households believe that now is a good time to buy a home.
• 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 on foreclosure.
• Over the last two decades, the value of mortgage purchase originations has tracked home-selling sentiment more strongly than home-buying sentiment.
• 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, historic-low levels. This suggests that selling sentiment and, hence, market activity, will remain sluggish in the near term.

“Despite high unemployment and slow economic growth, the bulk of American households believe that now is a good time to buy a home,” said Engelhardt. “Positive sentiment towards home-buying is strong particularly among young, educated, white and Hispanic households, and is attributable to low house prices and low mortgage interest rates. In fact, the pattern of home-buying sentiment during the current recession looks very similar to that of past recessions. Homebuyer sentiment falls as the unemployment rate increases, and improves as job growth returns and housing becomes more affordable.”

“In economic terms, as market values have fallen, potential sellers have not adjusted their price expectations downward fast enough to bring buyer and seller sentiment in line with one another. There are a number of likely reasons for this. First, seller-expected prices may be tied to key past market values, such as the purchase price of the property, or what a comparable property may have sold for in the recent past. Second, underwater homeowners cannot adjust their minimum sales prices much below the outstanding mortgage balance, because they would need to bring cash to the table at sale. And finally, with large declines in market values, sellers now hold a highly leveraged option that pays off with any future increase in prices,” said Engelhardt.

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