Brand Report: Interest Rates on the Minds of Consumers in Latest Homeowner Sentiment Survey
Current and prospective homeowners â€“ particularly Millennials â€” remain optimistic about the state of the U.S. real estate market yet they expressed concern over the prospects of rising interest rates in Berkshire Hathaway HomeServicesâ€™ latest Homeowner Sentiment Survey released Tuesday.
Overall, 66% of current homeowners and 63% of prospective homeowners view the U.S. real estate market favorably â€“ 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% reporting a favorable view, representing a 15-percentage point jump since the same time last year. Two-thirds of Gen-Xers (ages 35-50) also expressed a favorable view â€“ an 8-percentage point increase from last year.
While respondents showed overall confidence in the market, compared with last year, they expressed greater concern about how an increase in the Federal Reserveâ€™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% of current homeowners and 79% of prospective homeowners cite increasing interest rates as a challenge impacting the real estate market today. These figures represent 16- and 8-percentage point jumps, respectively, from the same time last year â€“ just before the Fed raised its benchmark rate for the first time in nearly a decade. Similarly, 44% of current homeowners and 70% of prospective buyers said they would feel anxious if mortgage rates were to go up, representing 11- and 8-percentage point jumps from last year, respectively.
â€œPeople feel good about real estate because housing is doing well in many markets across America,â€ said Gino Blefari, CEO of Berkshire Hathaway HomeServices. â€œAlthough the idea of a rate hike can grab headlines and initially create some unease, itâ€™s important to remember rate increases are often the mark of an improving, healthy U.S. economy. That is the case today.â€
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% of prospective homeowners described them as â€œlow.â€
â€œMortgage rates remain near historic lows, although it may not seem that way to recent, first-time buyers and those considering a home purchase,â€ said Stephen Phillips, president of Berkshire Hathaway HomeServices. â€œMortgage 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.â€
A conforming, 30-year fixed-rate mortgage carried a rate of 4.125% in early December, up from 3.75% during the same period a year ago. Phillips believes conforming rates will remain below 5% for the next 2-3 years. â€œI 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.â€
Millennials Look Past â€˜Starterâ€™ 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 â€“ ones requiring TLC to be fixed over time â€” Millennials recognize affordability and the opportunity to build credit and become a homeowner sooner.
The top reason keeping Millennial renters on the fence â€” they are saving to buy their dream home. Of those who said theyâ€™re waiting for their dream home, half cited the desire to go through the home-buying process only once and 37% said they donâ€™t want the hassles of renovating an older home.
â€œStarter homes can provide first-time buyers with independence and an attainable investment,â€ said Blefari. â€œThe process of buying one â€“ while never easy â€“ may not be as difficult as itâ€™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.â€
Homeowner Sentiment on Real Estate Technology
When it comes to emerging technologies in real estate, 50% of current homeowners and 49% 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 â€œconfusing,â€ suggesting that agents can provide value in helping clients understand the mortgage process.
Despite technologyâ€™s growing role, nearly all current and prospective homeowners (85% and 83%, 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 respondentsâ€™ own online searches and use of other available real estate tools and resources.
Methodology: Interviews with 2,509 respondents were conducted online by Edelman Intelligence in October and November 2016. Respondents captured were either current homeowners (individuals who currently own a home as a primary residence) or prospective homeowners (individuals who do not currently own a home and are likely to buy a home as their primary residence in the next six months). The margin of error is +/-2.19% for current homeowners and +/- 4.38% for prospective homeowners.
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Reprinted with permission from RISMedia 2016.