- Soaring home prices and robust buyer demand have made purchasing a house far more difficult.
- However, despite these headwinds, Americans continue to pursue homeownership.
- UBS analyst John Lovallo says it's because homeownership remains a solid investment.
Over the past few years, pursuing homeownership has been no easy task.
Soaring home prices, intense bidding wars, and a fundamental lack of housing supply have forced buyers to compete for the American dream of homeownership.
However, despite the uphill battle, Americans continue to invest in real estate — and not even market volatility has been able to stand in their way.
John Lovallo, an analyst with investment banking company UBS, told Insider it is because people still perceive homeownership as a solid investment.
"Historically, home prices have been pretty much on a straight line as there have been very few times where we've seen a decline," Lovallo said. "More recently, there's been this sort of COVID bump that has driven home price appreciation and I think that in itself is attractive to many of these folks."
Indeed, homeownership is a key driver of wealth accumulation. Research shows that people tend to use their homeowner equity — meaning the current value of a home, minus what a homeowner owes on their mortgage — for big costs like debt consolidation, educational expenses, and even launching new businesses, all of which can help grow a household's wealth.
Lovallo says the potential for wealth building has been attractive to Americans, especially during the COVID-19 pandemic. During this time, homeowner equity in the US has soared to $27.8 trillion, far above the $19.5 trillion seen in the fourth quarter of 2019 prior to the virus' spread. Tappable equity — the amount of cash available for homeowners to access while retaining at least 20% equity in their homes — has climbed to $11.5 trillion, which is up $2.3 trillion from the same time period just last year.
"For many, owning a home has proved to be a very good investment and I really do believe that COVID has changed the way people think about housing," he said.
To gauge how Americans feel about homeownership, UBS surveyed 2,100 American adults during the month of June. The company found that although demand has moderated due to affordability headwinds — such as mortgage rate volatility and rising home prices — buyer intent remains resilient.
According to UBS, 42% of its respondents say they "strongly agree" that owning a home is a "great investment" — the highest level dating back to the survey's inception in November 2014. Furthermore, 36% of respondents say they plan to purchase a residential property within the next 12 months, despite mortgage rate volatility.
Throughout 2022, mortgage rates have been on a proverbial seesaw as the Federal Reserve attempts to cool inflation. Rate hikes coupled with soaring home prices have made housing far less affordable for many would-be buyers. However, despite rising costs, UBS' survey shows that 66% of its respondents still believe they will be able to find an affordable home.
While this is below UBS' historical average of 70%, Lovallo says it's still "a solid result" as it shows that demand for housing remains robust.
"I think the buyer in the market today is a need-based buyer — especially the first-time buyer," he said. "After renting or living at home for a number of years, life events are driving this buyer's need for homeownership. So if they can make the math pencil, they're going to buy a home."
For those who can still afford a home purchase, UBS' data shows that not even a possible housing downturn can hold them back. Although home values have begun to fall in pockets of the country, 47% of survey respondents believe their home values will be higher within the next six months.
Lovallo suggests their optimism is attributed to the fact that "there is a structural deficit of housing supply" in the US that he believes "will take years to rectify" — and that means home prices are likely to continue climbing, providing homeowners with greater returns on their real estate investments.
"People tend to view homeownership as a longer-term investment and therefore aren't deterred by shorter-term adjustments in the housing market," he said. "The American Dream of homeownership is not dead and now more than ever people perceive their home as much more than a place to eat and sleep."