Lower Expectations Dent Housing Confidence

According to the vast majority of 10,000 heads of household who participated in the latest U.S. Housing Confidence Survey conducted by Pulsenomics, prevailing real estate market conditions are healthy, and in most major metropolitan areas, have continued to improve. However, expectations concerning the housing market–while still positive–have reversed course since the start of the year, bumping-down overall housing confidence as measured by The Zillow Housing Confidence Index (ZHCI).

So, for the first time in the brief history of ZHCI, the outlook for housing (the orange line in the above charts) is weaker relative to the assessment of prevailing market conditions (the gray line). This outlook reflects direct feedback from consumers on a variety of factors that are pertinent to their housing future, e.g., their expectations concerning:

• The direction and pace of local home value changes in the near-term
• The course and speed of local home value changes in the long-term
• Home affordability in the future
• The financial value of homeownership vs. renting over the long-term
• The relative investment value of long-term homeownership vs. investment alternatives

Given the outsized impact of homeownership on personal balance sheets and its interplay with the aspirations and behaviors of U.S. households, if the downshift in housing expectations persists, it could portend a more extended period of home price deceleration–and consumer tightfistedness.