Overall, Americans are more confident in the housing market than at the start of the year, buoyed by optimism among millennials, but with tempered expectations in general for future market performance, according to the latest Zillow Housing Confidence Index (ZHCI). The headline U.S. 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. The ZHCI is sponsored by Zillow and developed by Pulsenomics LLC, and measures 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 (HMCI), which measures prevailing market trends and buying/selling conditions.
►The Housing Expectations Index (HEI), measuring expected changes in home values, home affordability and the value of homeownership.
►The Homeownership Aspirations Index (HAI), which measures household home-buying plans and attitudes toward the social value of homeownership.
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 Forecastiii predicts home value growth of 3.1 percent through next August, down from 6.6 percent over the past year.
The ZHCI and all sub-indices are also computed by tenure, to enable measurement and comparison of housing confidence among homeowners and renters. Overall, housing confidence is higher among homeowners than renters, likely owing to historically high rents and favorable home buying conditions.
Analysis of data within the 10,000 completed survey questionnaires used to calculate the ZHCI reveals that younger renters are upbeat about their future home-buying prospects. 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 six 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 aretomorrow'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."
In some respects, millennials' views toward housing may 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.
"Although strong aspirations are no substitute for financial capacity or creditworthiness on a mortgage loan application, this feedback from millennial renters is significant because it confirms that they bear relatively few psychological scars from the housing bust, and because the attitudes of this generation will drive housing trends in the decades to come," said Pulsenomics Founder Terry Loebs. "Regarding the outlook of renters across all generations, in 14 of the 20 major metro areas in which we conduct our research, a majority of renter households don't believe that right now is a good time to buy a home. However, a larger, two-thirds majority of these 3,764 renter households said that owning a home someday is a specific goal that they are determined to reach, or something that they think about a lot."