Consumer housing sentiment hits lowest levels since the 1970s — here’s why that matters for the market

The American public’s perception of housing affordability has deteriorated to levels not seen in nearly half a century, signaling deep stress within the residential real estate market. According to recent data from the University of Michigan, the Home Buying Conditions Index—a metric measuring the net share of consumers reporting good versus bad buying conditions—plunged to one of its lowest readings since the survey began in 1960.

This collapse has only occurred twice before in modern history: during the 1974 energy crisis and in 1981, amidst the Volcker-led interest rate shock. Now, in mid-2025, we’re witnessing another dramatic low, and the implications could ripple far beyond housing.

From Boom to Bust: Sentiment Freefall Since 2021

Since the second half of 2021, the index has entered a steep and nearly uninterrupted decline. The most recent figure, from June 2025, shows the index falling below 40 points, far below the long-term average of 120–140. That suggests most consumers today see housing as a bad deal—whether due to affordability, financing conditions, or market dynamics.

What triggered the collapse? The main culprit is mortgage rates. The average 30-year fixed mortgage rate has hovered around 7% since 2023, compared to 2.5%–3% just a few years earlier. This spike has increased monthly payments by over 60% for a typical homebuyer, effectively locking out a vast portion of first-time buyers.

A Frozen Market: Sellers Aren’t Selling, Buyers Can’t Buy

Today’s housing market is locked in a stalemate. On one side, existing homeowners are holding onto ultra-low mortgage rates secured during the pandemic era, creating a disincentive to sell. On the other, would-be buyers face the worst affordability backdrop in decades, with high rates and tight inventory driving up entry barriers.

This double-sided gridlock means that even with sustained housing demand, transaction volumes remain depressed. In effect, the entire residential market is behaving like a frozen asset class, with capital trapped on both ends.

Echoes of the 1970s and 1980s: What History Tells Us

Historical context reinforces the gravity of the situation. The two prior collapses in homebuying sentiment—1974 and 1981—preceded or coincided with deep economic downturns. In both cases, the U.S. economy entered a recessionary phase, fueled by inflation shocks, monetary tightening, and weakened consumer confidence.

While the current economy has not officially entered recession territory, the housing data serve as a canary in the coal mine. Housing is often a leading indicator, and such a dramatic drop in sentiment warrants serious attention from investors and policymakers alike.

The Psychological Shift: When the Dream Feels Out of Reach

Beyond the economics, the data reveal a deeper psychological dislocation, particularly among Millennials and Gen Z. For many in these cohorts, homeownership now feels like an unattainable fantasy rather than a realistic milestone. The combination of stagnant wages, high rates, and soaring home prices has created a growing sense of generational exclusion.

This shift could have lasting implications on long-term financial behavior, with younger consumers prioritizing mobility, renting, and alternative asset-building strategies over traditional real estate investment.

Investment Outlook: Contrarian Opportunity or Systemic Risk?

From an investor’s lens, extremely negative sentiment can act as a contrarian signal. If the fundamentals of housing supply and demographic demand remain intact, today’s sentiment trough could eventually be followed by an upside reversal—particularly if interest rates begin to normalize in late 2025 or 2026.

Yet risks remain. If structural issues like undersupply, regulatory red tape, and affordability mismatches persist, the market may not rebound easily—even in a lower-rate environment. Institutional investors, REITs, and private equity groups will need to assess both macro conditions and behavioral shifts before deploying capital.

Policy Implications: The Pressure Is Building

The collapse in sentiment could soon become a political flashpoint. Lawmakers and local governments are already floating proposals aimed at reviving the housing ladder—ranging from down-payment assistance and mortgage rate buydowns to expanded multi-family zoning and subsidized rental programs.

We may also see new financing models emerge, such as income-based mortgages, shared equity schemes, and fintech-powered co-buying platforms designed to restore access for middle-class buyers. In other words, this isn’t just a rate issue—it’s a structural challenge that may require systemic reform.

Bottom Line:

The American housing market is facing one of its most acute crises in decades—not due to crashing prices or a credit meltdown, but because of a profound loss of confidence. Consumers simply don’t feel the conditions justify the costs, and unless that perception changes, the market could remain in gridlock.

For investors, policymakers, and consumers alike, this is a defining moment. The future of U.S. homeownership may depend not just on mortgage rates or price tags—but on rebuilding the belief that buying a home is still a smart, viable aspiration.