Housing sentiment slumps to lowest level since May 2020

US housing sentiment sank even lower in January as affordability and supply constraints continued to limit home purchase opportunities, particularly among younger households.

Fannie Mae reported Monday that its Home Purchase Sentiment Index (HPSI) fell 2.4% month over month and 5.9% year over year to 71.8 in January – its lowest level since May 2020.

During the month, a record-low 25% of respondents said it’s a good time to purchase a home, compared to the 69% of consumers who believed that it’s a good time to sell. Concerns about job stability and mortgage rates also weighed on consumers’ minds.

“Younger consumers – more so than other groups – expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” said Fannie Mae chief economist Doug Duncan. “Additionally, while the younger respondents are typically the most optimistic about their future finances, this month their sense of optimism around their personal financial situation declined.”

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Four of the six HPSI components decreased month over month in January. Component highlights include:

• The net share of Americans who say it is a good time to buy a home decreased five percentage points to 25%
• The net share of Americans who think it is a good time to sell posted a 12% month-over-month gain, up to 69%
• The net share of Americans who expect home prices to go up in the next 12 months rose 4% to 43%
• The net share of Americans who believe mortgage rates will go down in the next 12 months went down two percentage points to 4%
• The net share of Americans who say they are not concerned about losing their job in the next 12 months saw a decrease in November, down five percentage points to 78%
• The net share of Americans who reported that their household income is significantly higher than it was 12 months ago inched up six percentage points to 26%

“All of this points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed,” Duncan said. “On the whole, the latest HPSI results are consistent with our forecast of slowing housing activity in the coming year.”