Uncertain economic outlook starting to wear on buyers

by Kimberly Greene29 Aug 2019

Up until now, murmurs about an economic slowdown from economists and other experts in the financial industry haven’t had much of an effect on consumers. On the contrary, the Fannie Mae Home Purchase Sentiment Index received an eight-point net increase in July, taking it to an all-new high. New data, however, might reveal a different story.

More than 36% of 755 active buyers surveyed this month said they expect the next recession to begin next year, according to the latest survey by Realtor.com. That’s up from less than 30% who thought the same in March. If the economy does slow down, about 56% of respondents said that they would postpone looking for a home.

This comes as home borrowing costs experienced their first major increase in six weeks, contributing to the biggest weekly drop in mortgage applications in more than four months, according to data from the Mortgage Bankers Association.

Volatility plagued the Treasuries markets as investors continued to monitor the developments in the trade battle between the US and China, and that resulted in the rise of mortgage rates. As the conflict continues between the two global superpowers and all await to see what impact it will have on the global economy, experts think it will likely hurt housing and homebuyers are starting to feel that uncertainty.

“Uncertainty over the near-term economic outlook and low supply continue to be the predominant headwinds for prospective homebuyers,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement.

MBA’s seasonally adjusted index on loan requests to buy a home and to refinance one fell 6.2% to 576.2 in the week ended Aug. 23. This was the steepest decline since a 7.3% fall in the week of April 19. As borrowing costs rose, refinancing activity fell 7.6% last week, while loan applications to buy a home declined by 4%.

The refinancing share of total applications shrank to 62.4% from 62.7% the week before.

The average interest rate for 30-year fixed-rate mortgages with conforming loan balances climbed to 3.94% from the prior week’s 3.90%, which was the lowest since November 2016.

The 30-year rate on conforming mortgages has fallen 44 basis points so far this year. Average interest rates on most fixed-rate home loans MBA tracks edged up one basis point from the prior week, while the average rate on five-year adjustable mortgages jumped to 3.42% from 3.35% the prior week.

Even though more than half of the respondents in the Realtor.com survey said that they believe a recession is coming in 2020, 44% of those surveyed said that they think next recession will be milder than it was in 2008.

“The next recession will likely be driven by factors outside of housing, such as a prolonged trade war, cutbacks in corporate spending or contagion from a European recession,” George Ratiu, senior economist at Realtor.com, said in a statement. “We do not expect it to be anything like 2008.”