Fannie Mae says results from its fourth quarter 2020
National Housing Survey show that consumers continue to view homeownership as a
good investment.
Respondents were asked about various investment types,
including stocks, bonds, homes, and savings accounts. Seventy-five percent of
respondents indicated that homes are a “safe” investment, ranking just slightly
below a savings/money market account. Additionally, 73 percent of consumers
felt that investing in a home has “a lot of potential.”
Only 63 percent felt
that way about owning stocks.

The report, written
for the company’s Perspectives
blog by Mark Palim, Vice President and
Deputy Chief Economist and Rachel Zimmerman, Market Research Advisor and
National Housing Survey Lead, says the recent single family housing market has been
especially strong. As of Q4 2020, home prices were up by double digits and
existing home sales were 20 percent higher year-over-year.  

The authors attribute
much of housing’s strength to the response of policymakers and consumers to the
unique circumstances of the COVID-19 pandemic. “Thus far, the pandemic has
contributed to historically low mortgage rates, higher savings for many
households, and even stronger demand for homes relative to supply, as many
households searched for homes with additional features, including more space,
home offices, and the ability to safely ‘nest’ with their families. Even in the
years prior to the pandemic
, consumers reported that they believed housing, as
an asset class, was a safe investment with high potential, a perception which,
if it persists, will likely further support demand even as pandemic-related
factors recede.”

They say Americans appear to have an ingrained belief that housing investments
are almost as safe as a money market or savings account, but also that they
have the growth potential of a stock investment. Demographic groups shared a
high, positive perception of housing as an investment, but Black and Hispanic
consumers tend to have a slightly stronger belief that housing has a “a lot of
potential” compared to White and Asian consumers. Meanwhile, White and Asian
consumers are more likely to believe that housing is a “safe” investment
compared to Black and Hispanic respondents.

 

 




Of course, housing isn’t always a “safe” investment with “a lot of potential.” There
can be steep declines or fluctuations in prices depending on the holding period.
The timeline of when someone buys and sells their home is an important factor
in the overall return and transaction costs are generally higher for housing
than other assets. However, when comparing homeownership to other investments,
consumers may be factoring in the rent they no longer have to pay or the tax breaks
that are beneficial to some. Finally, the leverage available for a downpayment
by mortgaging the bulk of a purchase is unique. A fixed-rate self-amortizing
mortgage also acts as a forced savings mechanism as the principal balance on
the loan is gradually reduced by funds that would otherwise have gone to rent
payments.

The survey is a
reminder that consumers remain focused on the long-term potential of housing.
In fact, 85 percent of consumers believe homeownership leads to wealth-building
and better financial health, and those numbers have been consistent over time. Research
supports that view. Two studies in particular, Homeownership and the
American Dream
and The Rate of
Return on Everything
conclude that, after “imputed rent” is included
in a home’s financial return (i.e., the rent one would have to pay if they did
not own their home), the rate of return on owning a home has historically been
similar to other asset classes such as stocks.

The authors say that consumers also value homeownership for non-monetary
reasons, perhaps contributing to the opinion that owning a home is an
investment with “a lot of potential.” Other investments or continuing to rent
may not provide the “sense of privacy and security” that 90 percent of
respondents say they want or the “good place to raise your family” desired by
89 percent. The reasons may vary, Palim and Zimmerman say, but the experiential
aspects of owning a home likely play a role in its high perceived value.

The attitudes
regarding the benefits and investment value of homeownership have not changed much
over the years despite the Great Recession and the current pandemic. It may
take a large increase in the relative returns of other asset classes, or fewer
favorable financial incentives for homeownership for consumer attitudes of
housing as an investment to change. For now, these longstanding beliefs in the
benefits of homeownership will probably continue to provide demand-side support
in the housing market.

By Jann Swanson , dated 2021-04-06 11:00:19

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Courtesy of Mortgage News Daily

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