Consumers continued to feel pessimistic about the housing market in October, reporting mixed feelings about buying and selling homes and worries over the economy overall.
Fannie Mae’s Home Purchase Sentiment Index stayed relatively flat, rising only one point in October to 75.5. The index’s six components increased month-over-month (MOM) but are down 6.2 points year-over-year (YOY.)
A somewhat larger group of consumers from last month said it’s a good time to buy a home (30%, +2%) or sell a home (77%, +3%), and report they expect mortgages will increase over the next 12 months. The net share of respondents who say it’s a good time to buy a home rose 3% MOM.
The share of respondents who expect home prices to rise in the next 12 months increased 2% to 39%, while the share who expect prices to drop fell 2% to 22%. The share who expect prices won’t change also fell by 1% to 32%.
But more respondents now say they don’t see improvements to their own finances in their futures, and their circumstances haven’t changed much from October 2020. The share of respondents who said their household income stayed the same over the last year rose from 57% to 62%, and the net share who said their household income increased fell 3% MOM.
“While homebuying and home-selling sentiment remain at historically low and high levels, respectively, more consumers now expect that their personal financial situation will not improve over the next 12 months. This is particularly true among surveyed homeowners and older age groups,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
“In October, consumers also reported greater concern about the direction of the economy, with ‘right track’ sentiment reaching its lowest level since October 2013. We believe the uptick in negative economic sentiment is likely a function of ongoing supply chain disruptions and inflation concerns.”
Inflation is currently at a 30 year high, and Americans expect it to get worse. Consumer inflation fears rose for the 12th consecutive month in October. The median expectation is that the inflation rate will be up 5.4% one year from now, the highest level since June 2013, according to the New York Federal Reserve’s Survey of Consumer Expectations.
The Federal Reserve has stressed it will not raise interest rates from their historically low levels until employment rates improve and inflation has “risen to 2 percent” and is “on track to moderately exceed 2 percent for some time.” Its view is that inflation is a temporary problem that will improve when supply chain issues have been addressed.
“Inflation is elevated, largely reflecting factors that are expected to be transitory,” Fed Chairman Jerome Powell said.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”
But 55% of consumers said they believe mortgage rates will increase in the next year. The share who expect rates to go down fell 3% to 5%, while the share who think they will stay the same remained unchanged at 33%.
Duncan emphasized that regardless of consumer opinion, the housing market remains strong and will likely stay that way.
“[W]hile economic uncertainty could potentially dampen mortgage demand over the longer term, we believe current market conditions remain conducive to home purchase activity, as demand for homes continues to far outstrip the supply available for sale,” he said.