Gap in U.S. Home Transaction Sentiment is Wider than Ever

Financial capacity limitations–along with a dwindling inventory of affordable single-family homes–are weighing-down renters’ confidence in the housing market, and contributing to a widening gap in “home transaction sentiment.â€

The latest edition of The U.S. Housing Confidence Survey of 10,000 heads of household–3,762 of whom are renters–reveals a growing imbalance that warrants monitoring. As reported by Zillow Research last week, 70 percent­ of (6,238) homeowner households surveyed in July said “now is a good time to sell a home”; at the same time, fewer than four in ten of renter households (just 38 percent) believe that “now is a good time to buy a home”.

The presence of this sort of transaction sentiment gap is not surprising in a persistent and robust seller’s market. Expectations for more home value gains are emboldening homeowners, while financial capacity limitations and constrained affordable single family home inventory are leaving record numbers of renters discouraged about the prospect of taking the homeownership plunge.

Unfortunately for many of today’s would-be homebuyers, existing owners’ upbeat assessments of selling conditions are not translating into increased listed inventory–especially in the entry-level segment of the marketplace, where negative equity remains elevated and continues to contribute to dampened transaction volume. Given the relative dearth of home listings, the selling sentiment expressed by homeowners may be revealing at least as much about their swagger as it is telegraphing their near-term intentions.

The Golden Gate Might Not Bridge the San Francisco Gap

San Francisco–the headquarters city of The Gap, Inc.–is also the metro area with the widest home transaction sentiment gap. About three-quarters of San Francisco homeowners (73 percent) said that “now is a good time to sell a home” in July, while just 13 percent of renters there said that “now is a good time to buy a home.” This gap has contributed to diminished housing confidence in San Fran since 2014 (according to The July 2016 The U.S. Housing Confidence Index, San Jose is the only other metro area where residents have lower housing confidence today than they did two years ago).

It’s worth noting that a narrow home transaction sentiment gap is not necessarily an indicator of market normalcy. Consider Chicago–of all the metro areas surveyed by Pulsenomics, the gap is narrowest there. Just over one-half (52 percent) of Windy City homeowners say that “now is a good time to sell a home,” the weakest such sentiment recorded of the 20 metro areas studied. No doubt, Chicago’s 19 percent negative equity rate–the highest among the 20 cities surveyed–is a significant factor in depressing would-be home sellers. Unfortunately for Chicago renters, a whopping 33 percent of existing owners of entry-level homes there are underwater.