The drop in house prices and personal experience with the housing market crash are the two biggest factors in affecting consumer attitude and confidence in homeownership, finds an October 2011 behavioral report, with consumer confidence in homeownership shifting to the older generation.
The Federal Reserve Bank of Boston’s Center for Behavioral Economics researched data from a 2008 survey of people in zip codes that were hardest hit by the crash in housing prices, and found they they were significantly more likely to be confident about owning a home if they were older than 58.
In contrast, younger survey respondents were significantly less likely to be confident about owning a home.
Despite residential real estate value falling by more than $4 trillion between 2007 and 2008, a March 2011 survey by Pew Research Center found that 37% of American adults still strongly agreed that “buying a home is the best long-term investment a person can make,” with even more weakly agreeing with the statement.
“Older respondents—whose models of the world are harder to alter—see the drop in house prices as a temporary dip in a stable long-term upward trend, making it a particularly good time to purchase,” says the survey.
The majority of respondents said that owning a home is either “without doubt” or “probably” better financially than renting.
Source: Federal Reserve Bank of Boston’s Center for Behavioral Economics, Oct. 2011
The findings indicate that economic experiences may affect the attitudes of different age groups differently.
“Individuals form their beliefs early in life, and hence their experiences at that time are potentially more influential. Applying this logic to the context of our study, it is possible that the real-estate market crash affected attitudes of the young but not of the older,” says the CBE.
Among those aged 58 or younger who either suffered from the real-estate market themselves, or know someone who did, were marginally less confident in owning versus renting.
However, for individuals older than 58, it’s the opposite, as those who had personal experience with the crash are more likely to express higher confidence in buying a home. This may be because older homeowners are more likely to have bought their home a few decades ago and made a net profit from this investment in spite of the crash, says the CBE.
Shifting Confidence in Home Ownership: The Great Recession can be viewed here.
Written by Alyssa Gerace