Homebuying sentiment hits survey low as affordability concerns mount

How many Americans think it's a good time to buy a home?

Homebuying sentiment hits survey low as affordability concerns mount

Consumer confidence in the housing market has plummeted to a record low, according to Fannie Mae's latest Home Purchase Sentiment Index (HPSI).

The HPSI, which measures various aspects of consumer sentiment towards housing, decreased by 2.5 points in May to 69.4. While this marks a decline from recent months, the index stayed 3.8 points higher than last year.

"Consumer sentiment toward housing declined from its recent plateau, as an increasing share of consumers struggle to find the positives in the current housing market," Fannie Mae chief economist Doug Duncan said in the HPSI report.

Only 14% of respondents believe it's a good time to buy a home, the lowest figure since the survey began.

This drop in sentiment is largely driven by ongoing affordability issues. A majority of consumers expect both home prices and mortgage rates to rise further in the coming year despite a slight increase in the number of respondents reporting higher household incomes.

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While 64% still view it as a good time to sell, that figure dropped from 67% as affordability constraints appear to be impacting potential sellers as well.

However, a growing share of 20% said their household income was significantly higher than a year ago, up from 17% in April.

Despite that income growth, respondents remained pessimistic that home prices and mortgage rates would improve over the next 12 months. 42% expect home prices to rise further, while only 25% anticipate lower mortgage rates.

“While many respondents expressed optimism at the beginning of the year that mortgage rates would decline, that simply hasn’t happened, and current sentiment reflects pent-up frustration with the overall lack of purchase affordability,” Duncan said. “This is most clearly evidenced by our ‘good time to buy’ component falling to a new survey low this month. On the other hand, homeowners’ perception of home-selling conditions declined only slightly and remains largely positive after a steady increase over the last few months.

"This suggests to us that, despite the so-called 'lock-in effect,' some homeowners may increasingly want or need to sell their homes for a myriad of non-financial reasons, which may lead to an increase in listings in the near future."

Fannie Mae said potential increases in housing inventory will enable slightly more sales activity through year-end. But the historic lack of homebuyer optimism captured in May underscores the significant affordability headwinds facing the market.

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