Current and prospective homeowners – particularly millennials — remain optimistic about the state of the real estate market yet they expressed concern over the prospects of rising interest rates in Berkshire Hathaway HomeServices’ latest Homeowner Sentiment Survey.
Overall, 66 percent of current homeowners and 63 percent of prospective homeowners view the real estate market favorably – a sentiment that has remained steady throughout 2016. Notably, millennials (defined in the survey as people ages 18-34) were the most optimistic generation, with 74 percent reporting a favorable view, representing a 15-percent jump since the same time last year. Two-thirds of Gen-Xers (ages 35-50) also expressed a favorable view – an 8-percent increase from last year.
Although respondents showed overall confidence in the market, compared with last year, they expressed greater concern about how an increase in the Federal Reserve’s benchmark interest rate may affect their ability to buy a home. Many economists expect a rate increase in December, which may exert upward pressure on mortgage rates.
In fact, 76 percent of current homeowners and 79 percent of prospective homeowners cite increasing interest rates as a challenge impacting the real estate market today. These figures represent 16- and 8-percent jumps, respectively, from the same time last year – just before the Fed raised its benchmark rate for the first time in nearly a decade. Similarly, 44 percent of current homeowners and 70 percent of prospective buyers said they would feel anxious if mortgage rates were to go up, representing 11- and 8-percent jumps from last year, respectively.
“People feel good about real estate because housing is doing well in many markets across America,” Berkshire Hathaway HomeServices CEO Gino Blefari said in a press release. “Although the idea of a rate hike can grab headlines and initially create some unease, it’s important to remember rate increases are often the mark of an improving, healthy U.S. economy. That is the case today.”
A majority of respondents acknowledged that higher mortgage rates would make it more difficult for them to buy a home. Yet, when it comes to perception of current mortgage rates, less than half of current homeowners and only 17 percent of prospective homeowners described them as “low.”
“Mortgage rates remain near historic lows, although it may not seem that way to recent, first-time buyers and those considering a home purchase,” Berkshire Hathaway HomeServices President Stephen Phillips said. “Mortgage rates ticked up following the presidential election, and we may see rates rise a little more in response to anticipated Fed action. Still, I expect mortgage rates to remain low for the foreseeable future.”
A conforming, 30-year fixed-rate mortgage carried a rate of 4.125 percent in early December, up from 3.75 percent during the same period a year ago. Phillips believes conforming rates will remain below 5 percent for the next 2-3 years.
“I anticipate moderate, steady growth for the U.S. over the next few years as baby boomers (ages 50-65) move into new phases of their lives and millennials come into their own as consumers. All things considered, this is a formula for continued lower mortgage rates,” he said.
Millennials look past ‘starter’ homes
In the survey, millennial enthusiasm was expressed in an openness to enter the real estate market. Six in 10 showed interest in purchasing a starter home. When asked about the advantages of starter homes – ones requiring TLC to be fixed over time – millennials recognize affordability and the opportunity to build credit and become a homeowner sooner.
The top reason keeping Millennial renters on the fence – they are saving to buy their dream home. Of those who said they’re waiting for their dream home, half cited the desire to go through the home-buying process only once and 37 percent said they don’t want the hassles of renovating an older home.
“Starter homes can provide first-time buyers with independence and an attainable investment,” Blefari said. “The process of buying one – while never easy – may not be as difficult as it’s perceived it to be. Of course, a trusted real estate agent will be an ally to help any new buyer get a foot in the door on their way toward accomplishing longer-term real estate goals.”
Homeowner sentiment on real estate technology
When it comes to emerging technologies in real estate, 50 percent of current homeowners and 49 percent of prospective homeowners said they were most excited about virtual reality tours as a home-buying tool. About one-quarter of prospective homeowners labeled mortgage rate calculators as “confusing,” suggesting that agents can provide value in helping clients understand the mortgage process.
Despite technology’s growing role, nearly all current and prospective homeowners (85 percent and 83 percent, respectively) agree real estate professionals remain essential to the home-buying process for their negotiation skills, property assessments and home tours, among other services. Respondents indicated an eagerness to participate directly in the process, as six in 10 said they prefer to harness the power of a real estate agent along with respondents’ own online searches and use of other available real estate tools and resources.