Economic confidence is rising, but is the housing market keeping pace?
The economic landscape has shown signs of recovery in recent months, with many consumers expressing increased confidence in their personal financial situations. However, this optimism hasn’t translated to the housing market, according to the latest findings from Fannie Mae’s Home Purchase Sentiment Index (HPSI).
The index saw a modest uptick of 0.8 points to 66.8 in July. Compared to the same time last year, the HPSI was up by four points.
The rise was primarily driven by consumers’ heightened confidence in their job security and their expectations for home prices. Yet, a staggering 82% of those surveyed believe now is a “bad time to buy” a home, marking a new high for the survey and a jump from 78% in June.
“While consumers are reporting confidence in the components related to their personal financial situations, it’s unlikely we’ll see housing sentiment catch up to other broader economic confidence measures until there is meaningful improvement to home purchase affordability,” said Fannie Mae chief economist Doug Duncan.
Duncan noted that while consumers are buoyed by stable job prospects and consistent or improved incomes compared to a year ago, the sentiment around home buying has plummeted to an all-time low. Only 18% of respondents felt it’s a favorable time to purchase a home. The primary culprits? Skyrocketing home prices and less-than-ideal mortgage rates.
“Unsurprisingly, consumers continue to attribute the challenging conditions to high home prices and unfavorable mortgage rates,” he said. “Further, the share of consumers expecting home prices to continue to rise has also been on a steady climb since March, which may only add to perceptions of unaffordability. Additionally, we have not seen much movement in the ‘good time to sell’ component over the last few months, an indication that the current low levels of existing homes for sale will likely continue to persist in the near term, as also reflected in our latest forecast.”
A closer look at the HPSI components:
- Buying and selling sentiments: The net share of respondents who felt it was a good time to buy a home fell eight percentage points to 18%. Meanwhile, the share of those who said it was a good time to sell remained unchanged at 64%.
- Home price and mortgage rate expectations: Forty-one per cent (41%) of respondents anticipate home prices rising in the coming year, a 6% jump from the previous month. On the mortgage front, 45% expect rates to climb, down from 47% in June.
- Job security and income: Eighty per cent (80%) of those surveyed aren’t worried about a potential job loss in the upcoming year, a 6% rise from the month before. In terms of household income, 19% reported a significant increase compared to the previous year, while 10% felt their income had decreased.
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