HPSI Suggests A Slower Housing Market In 2022

Fannie Mae’s Home Purchase Sentiment Index (HPSI) fell 0.5 points to 74.2 in December, the GSE reported. Three of the index’s six components fell month-over-month as consumers once again reported pessimistic views on the homebuying market. Year-over-year, the index rose by 0.2.

A record-low 26% of respondents reported they believe it’s a good time to buy a home, while 76% said it’s a good time to sell. 

This is a drastic drop from December 2020, when 50% said it was a good time to sell and 52% said it was a good time to buy.

Month-over-month, the share of consumers that reported it’s a bad time to buy a home rose from 64% to 66%, while the net share of consumers who said it’s a good time to sell rose 6%.

The index, which has been declining since March 2021, might mean the housing market will soften in 2022.

“Over the past year, low mortgage rates plus government stimulus programs helped increase mortgage demand, but the bidding-up of homes increased prices to record levels, making affordability a greater constraint for both first-time and move-up homebuyers,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

“Even though demand remains strong, a majority of consumers clearly have reservations about purchasing a home at current prices.”

Mortgage rates climbed to 3.22% last week, their highest level since May 2020. Duncan noted that rising rates and increasing debt-to-income levels will exacerbate affordability concerns.

Though rising rates could deter some homebuyers and contribute to a housing market cooldown, they could fuel a temporary boost in sales. A recent Redfin survey found that 47% of buyers would feel more urgency to buy a home if rates rose above 3.5%.

“Mortgage rates increasing will make homebuying less affordable. Over time, that will put the brakes on demand and put an end to double-digit annual price growth,” Redfin Chief Economist Daryl Fairweather said.

“But in the short term, this increase will light a fire under home buyers and make for an extremely competitive January.”