The Anxious Americans: Household Confidence Strong, But Future Fears Rising

• Homeowners are still generally confident about the current state of the housing market, but are increasingly concerned about the future.
• Housing market confidence slipped slightly in July, but remains higher than it was a year ago.
• Confidence deteriorated more among homeowners than among renters, especially in coastal markets.

Americans’ overall confidence in the U.S. housing market slipped slightly in July from January, but remains higher than a year ago, according to the latest Zillow Housing Confidence Index (ZHCI), conducted in partnership with Pulsenomics LLC. But rising anxiety is causing confidence in the future path of local housing markets to falter in most large U.S. metros.

The headline U.S. Housing Confidence Index slipped 0.9 points to 66.5 from 67.4 in January, but remains 2.3 points higher than last July.

Confidence was highest in the western markets. San Jose, Seattle, Denver and Phoenix had the highest levels of confidence overall (figure 1), and Seattle, Las Vegas, Denver and Phoenix had the largest improvements in overall confidence since January.

The headline index fell more among homeowners than among renters, especially in the coastal markets (figure 2). The largest drops in homeowner confidence were in New York, Philadelphia and San Diego. The largest gains were in Las Vegas, Phoenix and Seattle. Among renters, the biggest improvements in confidence were in Seattle, Tampa and Atlanta, while the biggest drops were in Dallas, Miami and Minneapolis.

But while American homeowners are still relatively confident overall about the state of the housing market, they are also increasingly concerned by what may be lurking around the corner.

The main Housing Confidence Index is composed of three smaller indices, and differences in two of those three indices could indicate rising anxiety among homeowners and renters (click here for a guide to the headline and component indices). The Housing Market Conditions Index (HMCI) asks respondents to assess the state of the current housing market, and the Housing Expectations Index (HEI) asks respondents about their expectations for the housing market in the future. The first reflects confidence in the current housing market while the second captures forward-looking expectations.

Two very different patterns emerge when comparing the last round of the survey in January 2015 to the most recent July 2015 edition. In January, both current and future confidence were generally increasing. But in the most recent survey, homeowners’ assessments of current conditions continue to improve, but their assessment of the future has begun to deteriorate (figure 3).

Something in the air – perhaps looming interest rate hikes by the Federal Reserve, perhaps talk of overvaluations, perhaps nightmares of the last housing bubble and bust – is making homeowners more worried about the future, especially in California and the Northeast.