Fannie Mae Homebuying Metrics Reflect ‘Significant Volatility’

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In August, the Fannie Mae Home Purchase Sentiment Index (HPSI) saw a decrease of 0.8 points to 62.0, its sixth consecutive monthly decline, as high home prices and elevated mortgage rates continue to weigh on consumer sentiment, particularly home-selling sentiment.

Despite the relatively small aggregate change, the HPSI experienced significant volatility among four of its six components, including those measuring consumer perceptions of homebuying and home-selling conditions, as well as expectations regarding the future direction of home prices and mortgage rates.

Month over month, consumers reported that home-selling conditions have worsened – although that component remains strongly positive on net. Consumers also reported that homebuying conditions have improved, but 73% continue to report that it’s a “bad time to buy.” For the first time since the start of the pandemic, consumers are neutral, on net, about the future path of home prices, with an increasing share this month reporting that prices will decline. Meanwhile, a greater share reported the expectation that mortgage rates will decline, even though a majority continue to believe that mortgage rates will go up over the next 12 months. Year over year, the full index is down 13.7 points.

“The share of consumers expecting home prices to go down over the next year increased substantially in August. Accompanying this, HPSI respondents reported a significant decrease in home-selling sentiment,” observes Doug Duncan, Fannie Mae’s senior vice president and chief economist.  “We also observed a large decline in consumers reporting high home prices as the primary reason for it being a good time to sell a home, suggesting that expectations of slowing or declining home prices have begun to negatively affect selling sentiment.”

“Conversely, lower home prices would obviously be welcome news for potential first-time homebuyers, who are likely feeling the combined affordability constraints of the high home price and high mortgage rate environment,” Duncan continues. “In fact, the survey’s ‘ease of getting a mortgage’ component dropped to an all-time low among this typically younger demographic (i.e., 18- to 34-year-olds). With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year.”

The percentage of respondents who say it is a good time to buy a home increased from 17% to 22%, while the percentage who say it is a bad time to buy decreased from 76% to 73%. As a result, the net share of those who say it is a good time to buy increased 8 percentage points month over month.

The percentage of respondents who say it is a good time to sell a home decreased from 67% to 59%, while the percentage who say it’s a bad time to sell increased from 27% to 35%. As a result, the net share of those who say it is a good time to sell decreased 16 percentage points month over month.

As for home price expectations, the percentage of respondents who say home prices will go up in the next 12 months decreased from 39% to 33%, while the percentage who say home prices will go down increased from 30% to 33%. The share who think home prices will stay the same increased from 26% to 28%. As a result, the net share of Americans who say home prices will go up decreased 9 percentage points month over month.

Regarding mortgage rate expectations, the percentage of respondents who say mortgage rates will go down in the next 12 months increased from 6% to 11%, while the percentage who expect mortgage rates to go up decreased from 67% to 61%. The share who think mortgage rates will stay the same increased from 21% to 25%. As a result, the net share of Americans who say mortgage rates will go down over the next 12 months increased 11 percentage points month over month.

The percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 78% to 79%, while the percentage who say they are concerned decreased from 22% to 21%. As a result, the net share of Americans who say they are not concerned about losing their job increased 2 percentage points month over month.

The percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 24% to 25%, while the percentage who say their household income is significantly lower increased from 13% to 15%. The percentage who say their household income is about the same decreased from 61% to 59%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago decreased 1 percentage point month over month.

Image: “Guptill House in Sarasota Florida” by trishhartmann is licensed under CC BY 2.0

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