Homebuyer hesitancy grows: Fannie Mae index reveals pessimistic outlook

Consumer confidence dips amid turbulent economy

Homebuyer hesitancy grows: Fannie Mae index reveals pessimistic outlook

The Fannie Mae Home Purchase Sentiment Index (HPSI) dipped slightly in November, reflecting ongoing consumer skepticism about the housing market.

With only 14% of respondents viewing it as a good time to buy a home, sentiment remained at near-record lows.

Doug Duncan, Fannie Mae’s chief economist, noted that despite some earlier optimism about decreasing home prices as mortgage rates climbed, this sentiment has waned throughout 2023.

“Over the past year, the HPSI has plateaued at a low level, evidence of persistent consumer pessimism regarding the state of the housing market,” Duncan said in the HPSI report. “Looking back, consumer belief that it’s a ‘bad time to buy a home’ hit a survey high several times this year – including this month – and each time, the pessimism could be attributed to high home prices and mortgage rates.

“At the end of 2022, as mortgage rates approached 7%, a rate level not seen in over a decade, a plurality of consumers said they expected home prices to decrease; however, that optimism faded over the course of 2023.”

A notable majority of respondents anticipate mortgage rates to either rise or hold steady. Duncan pointed out the key issues impacting this outlook: “A significant majority of respondents have also continued to expect mortgage rates to increase or stay the same, though these expectations have tempered over the year,” he said. “At the same time, consumers have expressed a reduced sense of financial security, with fewer respondents reporting household income growth over the year and a higher percentage saying their incomes remained the same.”

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Duncan further projected that “persistent affordability challenges and less rosy household finances remain the primary drivers of the low-level plateauing of housing sentiment. Even if mortgage rates decline over the next year, which we currently expect, it’s unlikely to meaningfully affect affordability. The lack of housing inventory is likely to remain a challenge for some time, and home purchase sentiment may continue to be suppressed as a result.

“As our forecast indicates, we believe it will be a couple of years before home sales return to more normal, pre-pandemic levels.”

Other findings from the HPSI include:

  • A decrease in respondents who feel it’s a good time to buy a home, dropping from 15% to 14%.
  • A decline in those who believe it’s a good time to sell, from 63% to 60%.
  • The net share of those who say home prices will go up in the next 12 months remained unmoved at 41%.
  • An 8% increase in respondents expecting mortgage rates to decrease in the next year, up to 22%.
  • A rise in job loss concerns, with those not worried about losing their job in the next 12 months decreasing four percentage points to 76%.
  • A 3% drop in the number of respondents reporting significantly higher household income compared to the previous year, down to 19%.

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