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Buying a House? The Current Economic Conditions Are Making Americans Think Twice

CEO Khai Intela
Homebuyers across the United States are feeling increasingly pessimistic about the housing market. According to a recent Gallup poll, only 21% of adults believe that now is a good time to buy a house, marking...

Homebuyers across the United States are feeling increasingly pessimistic about the housing market. According to a recent Gallup poll, only 21% of adults believe that now is a good time to buy a house, marking a record low since the survey first began in 1978. This percentage has dropped by 9 points in the past year alone, and it represents the second time that the figure has fallen below 50%.

The poll, conducted from April 3-25 as part of Gallup's annual Economy and Personal Finance survey, reflects the impact of several factors contributing to the slowdown in the housing market. Rising mortgage rates, soaring home prices, and limited inventory levels have combined to dampen the overall sentiment towards home buying.

Interestingly, this pessimistic outlook is shared across various demographic groups, including different regions, urban and rural areas, homeowners and renters, people with different income levels and education, and individuals affiliated with different political parties. There is a common consensus that the housing market is currently facing significant challenges.

Only 21% of U.S. adults say it Image: Only 21% of U.S. adults say it

The Gallup poll has been tracking Americans' perceptions of the housing market since 1978. During that initial survey, 53% of respondents believed it was a good time to buy a house. Thirteen years later, this figure increased to 67%. The record high of 81% occurred in 2003, during a period of robust homeownership rates and significant increases in housing prices.

Even during the height of the housing crisis between 2006 and 2008, Americans remained relatively optimistic about buying a home, with approximately 52% considering it a good time to make a purchase. However, this sentiment is in sharp contrast to the optimism felt during the Great Recession, with the current percentage more than 30 points lower.

Will Home Prices Continue to Rise?

Apart from assessing general perceptions of the housing market, Gallup also monitors public expectations regarding housing prices in their respective areas. In 2021, a record high of 71% predicted that local home prices would increase over the next year, based on Gallup's trend dating back to 2005. This figure was similar in the previous year, with 70% anticipating rising prices.

Currently, 56% of Americans hold this view, while 25% believe prices will remain the same, and 19% expect a decrease. Despite the decline this year, expectations regarding home prices remain relatively high. In 2020, only 40% anticipated price increases, and between 2009 and 2012, when the housing bubble burst, the percentage ranged from 22% to 34%.

Expectations Vary by Region

Regionally, residents in the Midwest are less likely than those in other parts of the country to predict an increase in home prices over the next year. While 45% of Midwestern residents anticipate rising prices, the figures increase to 55% in the West, 61% in the South, and 62% in the East.

The survey also reveals that individuals living in towns or rural areas (45%) are less inclined than city (64%) or suburban (57%) residents to predict a local increase in home prices. Since 2022, there has been a significant decline of at least 21 percentage points in the percentage of Midwestern, Western, and town/rural residents who believe that local home values will appreciate. However, Southern, city, and suburban residents have shown only modest declines, while there has been no change among Eastern residents.

Real Estate: The Best Long-term Investment

Despite the current challenges and uncertainties in the housing market, real estate still remains the preferred long-term investment choice for Americans. When asked about the best long-term investment, 34% of respondents chose real estate this year. Although this represents a sharp decline from last year's record-high of 45%, it is consistent with the average proportion of respondents selecting real estate between 2016 and 2020, prior to the significant surge in housing prices during the pandemic.

The perception that gold is the best long-term investment has nearly doubled since 2022, rising from 15% to 26% this year. As a result, gold has surpassed stocks to claim the second position.

While 19% of Americans anticipate a decrease in home prices in the coming year—a significantly lower percentage compared to 2008 (38%) and 2009 (34%)—there is also a decrease in the number of people expecting prices to rise. Any stabilization or downward pressure on home prices could potentially make housing more affordable, especially if interest rates stabilize or decline in the upcoming years.

In conclusion, the current economic conditions have triggered a wave of pessimism among American homebuyers. Rising mortgage rates, high home prices, and limited inventory levels have contributed to this sentiment. However, despite the challenges, Americans still consider real estate a solid long-term investment. The housing market will continue to evolve, and it remains to be seen how these perceptions will shape future trends in the real estate industry.

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.