Home Purchase Sentiment Still ‘Very Low by Historical Standards’

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The Fannie Mae Home Purchase Sentiment Index (HPSI) increased 3.7 points in December to 61.0, but the index remains only slightly above its all-time low set in October.

Three of the index’s six components improved month over month, including those associated with homebuying conditions, mortgage rate outlook, and job security. Only 21% of respondents believe it’s a good time to buy, likely owing to the ongoing affordability challenges posed by elevated mortgage rates and home prices.

Year over year, the full index is down 13.2 points.

“In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices,” comments Doug Duncan, Fannie Mae’s senior vice president and chief economist. “However, the HPSI remains very low by historical standards, particularly the ‘good time to buy’ component, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism.

“As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers, as even small declines in rates and home prices – from the perspective of the buyer – may not produce sufficient purchasing power,” continues Duncan. “At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable. We think the resulting tension will contribute to a continued decline in home sales in the coming months.”

The percentage of respondents who say it is a good time to buy a home increased from 16% to 21%, while the percentage who say it is a bad time to buy decreased from 79% to 76%. As a result, the net share of those who say it is a good time to buy increased 8 percentage points month over month.

Those who say it is a good time to sell a home decreased from 54% to 51%, while the percentage who say it’s a bad time to sell increased from 39% to 42%. As a result, the net share of those who say it is a good time to sell decreased 6 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 remained unchanged at 30%, while the percentage who say home prices will go down increased from 34% to 37%. The share who think home prices will stay the same decreased from 30% to 29%. As a result, the net share of those who say home prices will go up decreased 3 percentage points month over month.

The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 10% to 14%, while the percentage who expect mortgage rates to go up decreased from 62% to 51%. The share who think mortgage rates will stay the same remained increased from 24% to 31%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 15 percentage points month over month.

Those who say they are not concerned about losing their job in the next 12 months increased from 78% to 82%, while the percentage who say they are concerned decreased from 21% to 17%. As a result, the net share of those who say they are not concerned about losing their job increased 8 percentage points month over month.

The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 27% to 25%, while the percentage who say their household income is significantly lower decreased from 17% to 15%. The percentage who say their household income is about the same increased from 55% to 59%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago remained unchanged month over month.

Image: MOHD AZRIN on Unsplash

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