While there is a strong demand among potential first-time buyers to enter the housing market in the next year, there are still existing headwinds making it more difficult for potential buyers to follow through on those aspirations as the market enters the busy spring home shopping season, according to the inaugural edition of the Zillow Housing Confidence Index (ZHCI).
In 19 of the 20 large metro areas surveyed, more than 5% of all residents indicated they wanted to buy a home in the next year. Among current renters, homeownership aspirations were particularly strong, with about 10% of all renters nationwide saying they would like to buy within the next 12 months.
The vast majority of these respondents also said they were confident or somewhat confident they could afford homeownership now. If all renters who indicated they wanted to buy actually did purchase a home in the next year, it would represent more than 4.2 million first-time home sales, which is more than double the roughly 2.1 million first-time home buyers in 2013, according to Zillow.
Homeownership aspirations among current renters were the highest in Miami, Atlanta and Las Vegas – three metro areas that were among the hardest hit by the housing recession – according to the Zillow Homeownership Aspirations Index (ZHAI), a component of the broader ZHCI.
But despite strong desires to own a home, Zillow notes that market conditions remain mixed for potential buyers. While inventory is up nationally compared to a year ago (up 11.1%), it still remains well below optimal levels and has fallen year over year in eight of the 20 metro areas surveyed by the ZHCI.
Recent data from the Census Bureau also indicates that the share of new homes built as rental units has grown, while the share of new construction dedicated to the kinds of single-family homes likely to be favored by first-time buyers is down.
Mortgage interest rates are also on the rise, currently standing at about 4.2% nationally, well above 2013 lows of roughly 3.3%, according to the Zillow Mortgage Marketplace. And as interest rates rise, homes in a number of particularly hot markets, including San Francisco, Los Angeles and San Diego, are already looking unaffordable for buyers with lower incomes, especially first-time buyers, as more income is devoted to mortgage payments, Zillow notes.
Stan Humphries, chief economist for Zillow, says the aspirations of homeownership are "very much alive and well" but the reality is that "conditions remain difficult" for home buyers. "The market is moving toward more balance between buyers and sellers, but it is a slow and uneven process."