HPSI Up Despite Consumer Concerns Over Home Prices And Mortgage Rates

More consumers than ever think mortgage rates and home prices will continue to rise, according to Fannie Mae’s Home Purchase Sentiment Index (HPSI).

The HPSI rose by 3.5 points to 75.3 in February, with five of the index’s six components increasing month-over-month despite respondents’ surly attitude towards home prices and interest rates. However, the full index dropped 1.2 points year-over-year (YOY).

The “Good Time to Buy” component is still hovering near its record low, with consumers saying they are deterred from homebuying by high prices.

Respondents to the survey said they feel an improved sense of job security, but a significantly greater share– 67%, a record high for the HPSI– assume mortgage rates will rise higher. The report notes this is likely due to the Federal Reserve’s signals that rate hikes are coming.

Federal Reserve Chair Jerome Powell recently affirmed March interest rate increases, though he said the bank will move “carefully” in the wake of Russia’s invasion of Ukraine.

“Nonetheless, the HPSI increased moderately in February, though the index still remains slightly lower on a year-over-year basis. Continued negative perceptions around homebuying conditions were offset in part this month by consumers’ increased sense of job security, which we believe is likely due to labor market tightness and declining COVID case counts,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

“However, with recent geopolitical events creating additional economic uncertainty – including likely increasing inflationary pressure – we believe the additional headwinds will compound existing affordability constraints to further soften mortgage demand in the coming year. It’s worth noting that this month’s National Housing Survey was conducted between February 1 and February 22, prior to the Russian invasion of Ukraine.”

Rising interest rates could also curb demand and therefore take pressure off the market.

“With higher rates, there will be fewer buyers who can qualify for a mortgage this year. This is going to slow down demand and take pressure off fast-rising prices… We can expect to see less competition and more price reductions,” Realtor.com economic research manager George Ratiu said.