- The share of Americans who think now is a good time to buy because home prices won’t fall is at a record high, according to the University of Michigan’s consumer sentiment survey.
- This is creating a self-fulfilling prophecy that’s making housing more unaffordable for first-time buyers, according to David Rosenberg, Gluskin Sheff’s chief economist.
Home prices are near record highs in many cities across America, and the belief they will continue rising is encouraging more people to buy.
The result is a higher barrier to entry for people who want to buy their first homes, according to David Rosenberg, the chief economist at Gluskin Sheff.
He drew his most recent observations on the housing market from the University of Michigan’s monthly survey that checks the consumer’s pulse on various parts of the economy.
The interesting housing tidbits in the latest survey, released on Friday, showed:
- The share of people who cite rising prices as the reason why it’s a good time to buy is at the highest level of the survey’s history, going back to the late 1980s. It’s “a case of expected asset inflation becoming a self-fulfilling prophecy,” Rosenberg said in a note on Tuesday. What that means is, if more people want houses because prices are rising, prices will rise even more.
- A record 59% of people believe that home prices will rise in the coming year, as the chart shows.
- The share of people who see it as a good time to buy because of low prices is near a record low in April. “So nobody is purchasing a home because they are cheap…principally because there are no cheap homes anywhere (at least in any desirable areas),” Rosenberg said.
- Lastly, the index that tracks people who say buying a home today is a bad idea because of high prices was at a five-month high in April. “This speaks to stretched affordability for first-time buyers,” he said.
First-time buyers, with zero equity stored in another home, are confronted with the toughest hurdle even though they’re in the minority of buyers. According to the National Association of Realtors, first-time buyers were involved in 30% of home sales in March, down from 32% a year ago.
Rosenberg questioned whether all this shows that the next housing bubble is forming – an important one to ponder a decade after the financial crisis. Unlike the previous run up in prices, however, this rise is not underpinned by low-credit borrowers and investment products that bundled risky mortgages together.
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