Mortgage Rates Overtake Home Prices As Main Buyer Concern

Consumer sentiment is stuck in the pits thanks to soaring mortgage rates.

Fannie Mae’s Home Purchase Sentiment Index sank further in September, down by 2.4 points to 64.5. The full HPSI is up 3.7 points YOY, a decline from August.

Five of the index’s six components fell month-over-month. The home price expectations component increased, resulting in a net negative outlook. 

Only 16% of respondents say it’s a good time to buy a home, down from 18% last month, while 84% say it’s a bad time to buy. This is new survey high.

The share of respondents who say it’s a good time to sell dropped as well, down to 63% from 66%.

Driving this pessimistic streak are mortgage rates, which are putting a damper on both sellers and buyers. For the first time ever in Fannie Mae’s records, high rates passed high prices as the main reasons respondents think it’s a bad time to buy.

“Mortgage rates persistently over 7% appear to be deepening the malaise consumers feel about the home purchase market,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. 

“This indicates to us that many homeowners are probably not eager to give up their ‘locked-in’ lower mortgage rates anytime soon, but it also may reflect the worry of some homeowners that sale values might be suppressed slightly if the pool of qualified homebuyers is constrained by elevated mortgage rates.”

Respondents largely believe that home prices will go up in the next 12 months (42%), reflecting an ongoing battle with affordability.

Further dampening consumers’ moods, the number of respondents concerned about losing their jobs in the next six months increased slightly and they reported having less income compared to a year ago.

“[Respondents] also indicated that their personal economic situations are showing signs of strain, including lower year-over-year household incomes and a reduced sense of job security. In our view, all of this points to home purchase affordability remaining a problem for the foreseeable future, which we forecast will keep home sales sluggish into next year,” Duncan added.

Rates are expected to stay high for the foreseeable future, though their volatility makes it hard to pinpoint how high. It’s possible they will breach 8% sooner rather than later, adding to consumers’ troubles.

Rates at 8% would push the necessary income to afford a typical home from about $107,000 to nearly $114,000, further pricing Americans out of the market, according to analysts at Zillow.

But Zillow notes that rates at that level would exacerbate current stock shortages and affordability concerns without sending the market into a full meltdown. Most buyers are already in a tight spot with rates at 7.5%, so another half point can only cause so much damage.

Read More Articles:

Atlanta On The Front Line Of Build-To-Rent Trend

Are Sellers Required To Reveal Deaths, Hauntings And Paranormal Activity?

Sign up for our newsletter.