Consumer homebuying sentiment has plateaued at ‘pessimistic’

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Seven out of 10 Americans polled by Fannie Mae last month said that if they had to move they would rather buy than rent, but a record high 82 percent also said August was a bad time to buy.

Last month’s National Housing Survey, a telephone survey of 1,000 homeowners and renters that Fannie Mae’s been conducting since 2010, showed consumer sentiment about housing markets has plateaued at a low level, Fannie Mae Chief Economist Doug Duncan said.

“Mortgage rates once again breached the 7 percent mark in August, hitting a 22-year high and doing no favors for consumer sentiment,” Duncan said in a statement Thursday. “Consumers remain pessimistic toward the housing market in general and homebuying conditions in particular.”

Fannie Mae takes six questions from the National Housing Survey and distills them into a single number, the Fannie Mae Home Purchase Sentiment Index (HPSI).

Source: Fannie Mae National Housing Survey, August 2023.

The HPSI trended up slightly from July to August, rising 0.1 points to 66.9, and is up 4.9 points from the same time a year ago. But the index was well above 90 before the pandemic and is only 10.2 points higher than an all-time low of 56.7 set last October.

Duncan said Fannie Mae economists “don’t see much upside to the index in the near future, barring significant improvements to home affordability, which we also don’t expect.”

Three of the HPSI’s six components increased from July to August. Consumers thought conditions for sellers had improved somewhat, and they were a little less convinced that mortgage rates will continue to rise over the next 12 months. In addition, more consumers said their household income had increased rather than decreased over the last year.

But consumer sentiment about buying conditions remains as low as it’s ever been in surveys dating to 2010.

Source: Fannie Mae National Housing Survey, August 2023.

With 82 percent saying August was a bad time to buy and only 18 percent saying it was a good time to buy, the net share of consumers who said last month was a good time to buy remained at negative 64 percent, matching survey lows registered in July and January 2023.

“While renters are slightly more pessimistic than homeowners, for two years now a large majority of both groups have told us that it’s a bad time to buy a home, and they’ve continuously cited affordability concerns as the primary reason,” Duncan said.

Source: Fannie Mae National Housing Survey, August 2023.

Although not factored into the HPSI, each month Fannie Mae also asks consumers whether they would buy or rent if they were going to move.

The share of consumers who said they would buy a home if they were going to move increased 4 percentage points from July to August, to 71 percent — a post-pandemic high. The share who said they would rent decreased by 5 percentage points to 28 percent.

While there’s considerable pent-up homebuyer demand, last year’s abrupt run-up in mortgage rates has made many existing homeowners reluctant to put their homes on the market, since they’d have to give up the low rate on their existing mortgage to buy their next home.

“In the past, first-time homebuyers typically sought to purchase existing homes, which were generally more affordable than new homes,” Duncan said. “They then invested sweat equity before moving further up the housing ladder, often in response to an expanding family or another significant life event.”

But the impact of the mortgage “lock-in effect,” combined with the growing tendency of baby boomers choosing to age in place, “has thrown a wrench into this historical cycle, making it more difficult for would-be homebuyers to find affordable existing home purchase options,” Duncan said.

Source: Fannie Mae National Housing Survey, August 2023.

Many economists expect mortgage rates to come down next year as the economy slows and inflation eases, giving the Federal Reserve room to ease up on monetary policy.

But consumers have been slow to get the message, with only 18 percent of those surveyed by Fannie Mae in August saying they expect rates to go down in the next 12 months. That’s up from 16 percent in July. But with the share of those who expect rates to go up increasing to 46 percent, the net share of those who expect rates to fall in the year ahead increased by only a single percentage point.

Source: Fannie Mae National Housing Survey, August 2023.

With prices remaining firm and listings scarce in many markets, two-thirds (66 percent) of consumers polled by Fannie Mae in August said it was a good time to sell a home, up from 64 percent in July. With the percentage who said it was a bad time to sell decreasing from 36 percent to 34 percent, the net share of those who said it was a good time to sell increased by 5 percentage points month over month.

“Given the significant home price appreciation and rapid rise in mortgage rates, it is very much a tale of two markets, at least from a consumer perspective,” Duncan said.

Source: Fannie Mae National Housing Survey, August 2023.

The percentage of consumers expecting home prices to come down in the next 12 months increased from 24 percent in July to 26 percent in August, and the percentage who expected home prices to go up was unchanged at 41 percent. The net share of those who said home prices would go up decreased by two percentage points from July to August.

While home price declines would be a positive for would-be buyers, Fannie Mae considers worries about price declines to be a negative in calculating the HPSI.

Source: Fannie Mae National Housing Survey, August 2023.

Most Americans who have jobs say they’re not concerned about losing them, although the percentage who said they are increased from 20 percent in July to 22 percent in August, contributing to a net share decrease of five percentage points of those who say they’re not concerned about a job loss.

Source: Fannie Mae National Housing Survey, August 2023.

More than one in five (22 percent) of those polled in August said their household income was “significantly higher” than a year ago, up from 19 percent in July. But 12 percent said their income was significantly lower, up from 10 percent in July. Nevertheless, the net share of those who said their household income was significantly higher increased by one percentage point from July to August.

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