Consumer Sentiment Sees A Boost As Rates, Prices Moderate

Homebuyers are feeling slightly more optimistic about the market as mortgage rates ease.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) rose 3.7 points in December. Three of its six components improved from the month prior as more consumers said they expect rates and home prices to drop.

After weeks of declines, rates inched up in the first week of 2023 but remain well below 7%. Economists at Freddie Mac expect them to fall further as inflationary pressures ease.

But home purchase sentiment remains near its all-time low, set in October, and is down 13.2 points YOY. Only 21% of respondents believe it’s a good time to buy a home. And the possibility of additional rate hikes from the Federal Reserve looms over the market as Fed officials continue to focus on stopping inflation over worries about the impact of higher borrowing costs.

Though more consumers think prices and rates will moderate over the next year, they are still unhappy with where those numbers stand today.

“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,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. 

Seller sentiment turned down, with the number of respondents who say it is a good time to sell a home falling from 54% to 51%. 

Duncan noted that existing homeowners have little incentive to sell thanks to the low mortgage rates they locked in during the pandemic

“We think the resulting tension will contribute to a continued decline in home sales in the coming months,” he said.

Pending home sales dropped to their lowest level since at least 2015 during the four weeks ending January 1. Pandemic hotspots in the West have seen the biggest declines due to their elevated prices.

Sales in  Las Vegas, Phoenix, and Austin all saw sales dip by more than 50% in the span of a month.

Sellers desperate to move their properties are offering concessions like money toward repairs or closing costs and mortgage-rate buy-downs.

“Buyers are asking sellers for things that were unheard of during the past few years,” Van Welborn, a Redfin real estate agent, said. 

“They’re feeling empowered, partly because their offer is often the only one, and partly because they know sellers have built up so much equity during the pandemic that they can afford to dole out sizable concessions.”