While low interest rates stimulated demand for housing in the first half of the year, affordability problems are holding back the purchase market, a First American survey of real estate professionals said.
“Title agents and real estate professionals no longer view limited inventory as the primary obstacle to becoming a homeowner,” said First American Chief Economist Mark Fleming in a press release. “The main burden, affordability, confirms the strong sellers’ market conditions from 2018 have continued in many markets in early 2019, as demand outpaces supply and prices continue to rise.”
Coming into 2019, many real estate professionals expected the housing market would behave much in the same way as it did in 2018.
Strong demand for homes but limited supply driving prices up and mortgage rates increasing characterized the industry, Fleming said about the results of First American’s biannual Real Estate Sentiment Index survey.
Confidence in residential purchase volume growth over the next 12 months decreased 5% and refi volume grew 72.5% compared with a year ago. As mortgage rates started dropping late last year, that changed real estate professionals’ observations about the market.
In the second quarter, the purchase index was 67.83, from a low of 44.59 in the fourth quarter and 71.4 in the second quarter of 2018. Meanwhile, the refi index, which had been trending down, rose to 59.54 in the second quarter survey, from 28.69 in the fourth quarter and 34.53 one year prior.
“According to 57% of title agents and real estate professionals surveyed, the unexpectedly low mortgage rates of 2019 have increased homebuyer demand in their market. In fact, only 15% disagreed with this sentiment,” said Fleming.
“However, despite lower mortgage rates boosting affordability and stimulating demand, 40% of survey respondents indicated that affordability is the primary obstacle to becoming a homeowner; this is not surprising as house prices nationally continue to grow, albeit at a slower pace in 2019. The next highest-rated obstacles to becoming a homeowner were the limited inventory of homes they like (30%) and down payment (22%).”
Lower rates have encouraged more potential sellers to put their home on the market, the survey found.
“Not only have concerns over limited supply eased as an obstacle to homeownership, homeowners appear to be more willing to list their homes for sale because they are more confident in finding a home to buy,” said Fleming. “When asked what had the greatest influence on the decision by homeowners to list their homes for sale this spring, most title agents and real estate professionals (37%) indicated the supply of alternative homes at the desired price point has increased.”
But finding a new home remains the biggest concern for homeowners by a wide margin. “When asked what was the greatest influence on the decision by homeowners to not list their homes for sale this spring, the biggest reason was the fear of not being able to find a home to buy (69%),” Fleming said.