American Attitudes About Housing Hit 10-Year Low: Prospective Home Buyers and Sellers Back Off from U.S. Housing Market

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The housing market is slowing down, and it’s clear that American attitudes about buying a home are changing as well. A new Fannie Mae survey shows that both prospective home buyers and sellers are backing off from the U.S. housing market. This is likely due to the fact that housing prices are continuing to rise while wages remain stagnant.

Buyer confidence has been rocked by rising home prices, increasing interest rates, and persistent inflation. Seller confidence had remained on a higher footing until the most recent couple of months, and is now further contributing to a decline in overall purchase sentiment. The Fannie Mae Home Purchase Sentiment Index (HPSI) dropped by 2 points in July to 62.8—the lowest level since August 2011. The HPSI declined for the third consecutive month and is now down 5.5 points compared with its pre-pandemic (February 2020) reading.

Notably, purchase sentiment is now slightly lower than the pandemic low of 63.0 points in April 2020. The net share of Americans who say it’s a good time to buy a home declined 2 percentage points to 31 percent while the net share who say it’s a good time to sell fell 3 percentage points to 21 percent—the latter representing the largest drop since December 2014. Media coverage of these trends likely contributes to the continued deterioration in purchase sentiment as buyers perceive that sellers have an advantage in the market.

Freddie Mac’s latest Primary Mortgage Market Survey showed that 30-year fixed-rate mortgage rates averaged 3.13 percent—just above last week’s all-time record low of 3.12 percent but still near historically low levels. Despite this week’s slight uptick, we expect rates to remain low and provide affordability tailwinds for potential homebuyers going forward.”

The Home Purchase Sentiment Index from Fannie Mae showed that the percentage of respondents who said it’s a bad time to buy a home increased from 75% to 76%. Only 17% of respondents said it’s a good time to buy a home. Higher rates are adding costs to potential homeowners: 67% of respondents expected mortgage rates to go up.

The 30-year fixed-rate mortgage averaged 4.99%, according to the newest data released by Freddie Mac. That’s up from an average rate of 2.77% a year ago. Homebuyers are still struggling with a large run-up in home prices, interest rates, and inflation, as well as limited inventory of homes for sale. The HPSI survey reveals that the net share of Americans who believe home prices will go up over the next 12 months decreased by 8 percentage points compared to last month.

Additionally, the net share of respondents who say now is a good time to sell a home increased 1 percentage point in August from the prior month. Despite these challenges, Americans’ overall confidence in the housing market continues to rise as more consumers believe that both home prices and mortgage rates will go up in the next 12 months.”

“The purchase sentiment index has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” Doug Duncan, SVP and chief economist at Fannie Mae, said in a statement.

Potential buyers are also worried about the direction of the economy. Roughly a fifth of respondents said they are worried about losing their job in the next 12 months. Even sellers are frightened with the percentage of respondents who said it’s a good time to sell a home fell from 68% to 67%.

“Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy,” Duncan said, “as well as sell a home.” About 30% of respondents expect home prices to go down.

What does this all mean?

Consumers are still struggling with an affordability crunch as they juggle rising home prices, interest rates, and inflation outpacing income growth. While the housing market is showing signs of moderation through growing inventory, an increase in price reductions, and slowing listing price growth, sellers have pulled back and are listing homes at lower rates than last year which may slow the adjustment in the housing market that is already underway.

The most recent Fannie Mae National Housing Survey polled around 1,000 U.S. adults by telephone to gauge their attitudes toward “owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence.” According to Duncan, this data shows that potential sellers’ sentiment indicates that conditions are softening. In addition, the fact that “fewer consumers expect home prices to go up” leads Fannie Mae to forecast home sales to moderate over the coming year.

Home sales are expected to continue to moderate compared to last year’s historic pace. However, a pull-back in feverish demand and adjustment in seller expectations could start to tip the market back toward a more balanced state toward the end of the year and many homebuyers may find better options later in the year.

If you are considering buying or selling a home in the near future, be sure to read our Personal Finance articles for more information on what is happening in the housing market and how it may impact your decision.

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