Consumer sentiment is stuck in the pits as mortgage rates remain elevated.
Fannie Mae’s Home Purchase Sentiment Index continues skimming its low-level plateau, increasing in August by 0.1 points to 66.9. The HPSI is up 4.9 points YOY.
Half of the index’s six components rose from July while the others stayed stagnant, resulting in a net negative outlook. Only 18% of respondents say it’s a good time to buy a home. The share of respondents who say it’s a good time to sell rose, however, to 66%.
Respondents largely believe that home prices will go up in the next 12 months (41%), though that number decreased by 2% from July.
“Consumers remain pessimistic toward the housing market in general and homebuying conditions in particular. The overall HPSI is maintaining the low-level plateau set a few months back, and we don’t see much upside to the index in the near future, barring significant improvements to home affordability, which we also don’t expect,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
Mortgage rates hit a 22-year high in August, pushing home ownership out of reach for even more Americans.
Rates have slid in the last couple of weeks but remain elevated.
At the same time, prices continue to rise as demand sends home prices soaring. The typical monthly mortgage payment is $2,612, just $18 below the record high set in May.
Further dampening consumers’ moods, the number of respondents concerned about losing their jobs in the next 6 months increased slightly, though remained under 25%.
The HPSI also registered competing increases over household income: the number of respondents who say their income is significantly higher than last year and those whose income is significantly lower both ticked up by 2%.
“From a historical perspective, the current housing market is unusual, as demonstrated in part by the HPSI and its recent plateauing. 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.
“Of course, a third perspective exists among homebuilders, who are currently thriving amid the surge in demand for new home construction.”
But even builders are forced to struggle against market tides, and their current outlook doesn’t bode well for affordability.
Single-family construction slowed in Q2 2023 thanks to a combination of high rates and rising construction costs. Duncan noted that new housing could never balance out the market on its own.
“Considering that existing home sales have traditionally represented approximately 85-90% of total home sales, even substantial quantities of new home production are unlikely to produce the inventory needed to meaningfully improve affordability,” he said.
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