What is the impact of the Fed rate hike on home purchase sentiment?

Consumers’ negative perceptions of the housing market continued through February, with Fannie Mae’s February Home Purchase Sentiment Index (HPSI) down to its lowest level in 19 months.

Fannie Mae’s latest report showed that a survey-record share of consumers, particularly homeowners and higher-income individuals, anticipate mortgage rates to increase in the next 12 months, likely a result of the Fed’s announcement that it will raise rates this March. Nonetheless, the full index was up by 3.5 points to 75.3 in February, though it remained down by 1.2 points from last year.

“High home prices continue to be the most commonly cited reason by consumers for their belief that it’s a good time to sell (and a bad time to buy) a home; notably, the ‘good time to buy’ sentiment among renters dropped to a new survey low,” said Fannie Mae chief economist Doug Duncan. “This suggests that homeowners and higher-income groups may recognize the importance of getting ahead of the rising rate environment, while renters are keenly feeling the double constraint on home purchase affordability of rising house prices and rising interest rates.”

Read more: Fed still likely to raise interest rates despite strong February jobs report

Duncan noted the negative outlook around homebuying conditions was offset by consumers’ increased sense of job security, which he believes is likely due to labor market tightness and declining COVID case counts.

“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,” Duncan said.

Five of the six HPSI components increased month over month. Component highlights include:

• The net share of Americans who say it is a good time to buy a home increased seven percentage points to 29%
• The net share of Americans who think it is a good time to sell posted a 3% month-over-month gain, up to 72%
• The net share of Americans who expect home prices to go up in the next 12 months rose 1% to 46%
• The net share of Americans who believe mortgage rates will go down in the next 12 months went down 10 percentage points to 3%
• The net share of Americans who say they are not concerned about losing their job in the next 12 months saw a 17% increase, down six percentage points to 87%
• The net share of Americans who reported that their household income is significantly higher than it was 12 months ago inched up three percentage points to 27%