Why US Consumers Are Souring — And What That Means For Housing

This report is available exclusively to subscribers of Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

As a senior research analyst for John Burns Research and Consulting, Maegan Sherlock takes a keen interest in what U.S. consumers are thinking, including their priorities, their worries and their attitudes toward the housing market.

The firm recently completed its latest household sentiment report, which features insights from a survey of 1,364 homeowners and renters with household incomes of at least $50,000 — in other words, prime candidates to buy a home. The survey respondents shared their thoughts in a period in late August and early September.

On a video call with Intel, Sherlock shared what’s been keeping so many younger prospective buyers on the sidelines — and driving others into the open arms of homebuilders. She also highlighted what’s changed since their last survey from March, when most potential buyers were holding out for a “magic” mortgage rate of 5.5 percent.

Her comments below have been edited for length and clarity.

Intel: Among the younger groups that were surveyed, it seems like they’re expecting to move more. And that’s pretty usual of a younger group of people — they’re expecting to move in the next five years, or not that far afterward. What interests you about the most recent survey results from this younger group in particular, and their attitudes toward the housing market?

Sherlock: I think a lot of times, especially for the [young] singles and couples, when we ask them about what their plans are for the next five years, they often are our renter cohort currently, so their plans for purchasing are usually aspirational. And that makes sense. If we’re talking about anyone out of college or even in their first five to 10 years of working in a job, they’re often renting and not entirely sure whether they’re going to stay, if they’re anchored to a location or not. So I think it’s really interesting to see. 

We take these numbers and we use them as best we can, but I think at the end of the day, we don’t know. Unless they are active shoppers — like we asked in this survey — it’s an aspiration. So if they say they want to move in the next two to three years, we kind of have to keep circling back to see whether or not our young homeowner cohort has increased. And often it’s a lower percentage overall when we look at our survey respondents.

I wish we had a better way to track how well these younger, aspirational buyers are doing. But at the end of the day, just comparing the number of renters to owners, mature singles and couples tend to make up the vast majority of our owner cohorts.

It’s interesting to think about, too, just the dynamics between older buyers who maybe already have a home. And they’re sitting on a great mortgage rate, and don’t want to move. But first-time homebuyers — they’re affected by the rates, no question — but there’s no disincentive to leave a great mortgage rate. I wonder if their attitudes about mortgage rates, if that’s part of the reason why it’s not one of the top 1 or 2 things that they’re looking at.

Yeah, I think it’s a big thing. But also, if you were talking about other concerns aside from high home prices and where is your down payment coming from: Of the young singles and couples out there that are already homeowners, a quarter of them received a down payment assistance in some form or another, whether it was a gift from a family [member] or friend, a loan from a family [member] or friend, or some sort of inheritance. 

Again, it’s only a quarter. There’s still 74 percent that have not received a down-payment assistance in that form. But when we’re talking about the factors that really hamper them and worry them, I would assume that more singles and couples than we realize, once they do find that dream home, have the opportunity potentially to have assistance from older relatives, whether parents, grandparents, etc. 

So again, with the rates being as high as they are, inventory being so low — that sort of thing — those issues remain at the top of their concern list, because the down payment may not be as much of an issue, for some.

And then for that other group — the 74 percent that just don’t have access to that assistance — how does that appear to be affecting how they look at, say, the up-front costs of the resale market vs. the up-front costs associated with buying a newly built home?

Yeah, the younger cohort — the singles and couples — were really into new construction, as opposed to resale. 

In a market where they are considering potentially both [new construction and resale], they didn’t want the up-front maintenance costs of not knowing whether there’s a leaky roof somewhere, or whether there’s a repair that needs to be made or an outdated kitchen that needs to be dealt with. They were really focused on ‘no surprise costs.’ 

You go into a builder’s buying office and you know exactly what it’s going to cost. Oftentimes, they’re offering rate buydowns. And so while there’s not the negotiating wiggle-room that there potentially would be in a resale situation — not that that’s really a thing these days, because houses obviously fly off the shelves — because they have these rate buy-downs, which you don’t see in a resale situation, I think they’re thinking, ‘OK, we know the cost. We know everything’s brand-new. Theoretically, the parts of the home are under warranty for a certain amount of time, usually, so we’re guaranteed this price and no other surprise hidden costs, at least in the near future.’ And I think that’s really appealing to people in the younger age groups. 

I saw one of the main takeaways was on general sentiment about the state of the housing market. I think the term you all used was that it ‘soured slightly’ among most of these groups surveyed. I’m curious if anything else — it could be a small trend, or it could be a bigger one — but what are the changes that you did see from March report sentiment levels to the more recent check-in with these potential buyers?

The biggest thing for us that was still very interesting was inflation. Even though inflation has lowered, I mean, we started doing this survey last July, when inflation I think was at 9.1 [percent], and the very first time we did it, obviously people were raving about inflation then, and that that was the highest it’s been. In March [of this year], they were still like, ‘Inflation is hurting my wallet, my budget is tighter,’ etc. And now that they’ve lived with a full year of higher inflation — even though it’s come down significantly since last July, it’s still hurting people. 

Job security, they didn’t rank that any lower than they had in the past. They’re still feeling pretty secure in that area. But the budget-tightening — not having room in their budget for discretionary spending — that sort of thing is still weighing on people’s minds. 

One of the more interesting parts is people are, like, really convinced that rates are going to come down. We asked, in the next 5 years, do you think it will come sub-5 percent? And most people think yes. I don’t know what to attribute that to, so much as just being lulled into this false narrative of, ‘Well, this is what it was like in the recent past, so that’s what it should go back to.’ I’m not entirely sure. But they seem to be very convinced that rates are not going to stay this high, period. And so I think those who are shopping or do have this mentality are like, ‘OK, well, I’ll just refinance later, if I have the opportunity, even.’ Because they think that these high rates are temporary. 

That ‘magic’ mortgage rate is still the exact number [from March]. People are like, ‘No, 5.5 percent [mortgage rate], that is my benchmark [for entering the market].’ None of that has changed.

Is there anything else you learned that was interesting to you, particularly from this most recent report?

I thought that, over the course of a year-plus of rising rates, that people would adjust their expectations in terms of, if they’ve been looking for a home for some time and rates go higher, would there be a slight uptick? 

I was hoping to see a new ‘magic’ mortgage rate. I guess six months is not enough time to change people’s minds, is what I’m learning. 

It’ll be interesting to see, a year out from now, if that number shifts at all. I think it’s interesting how steadfast the consumer mindset remains. People are not as easily swayed as perhaps I thought they were.

Email Daniel Houston