Bulls On Rate Cuts, Bears On Buying, Homebuyers Hedge In August

By the numbers: Homebuyer sentiment remained largely unchanged from July to August, increasing 0.6 points on Fannie Mae’s Home Purchase Sentiment Index (HPSI) to 72.1, despite consumers reporting greater optimism in future mortgage rates falling.

• A survey-high 39% of consumers said they expect mortgage rates to decline in the next 12 months, up from 29% in July.
• Only 17% indicated now is a good time to buy a home, despite the improved affordability outlook — 65% believe now is a good time to sell a home.
   

Reality check: A significant gap between respondents in the South (56%) and Northeast (80%) regions concerning whether it’s a ‘good time to sell’ suggests that regional variations in inventory increases have not impacted markets across the nation equally.

• Post-pandemic new construction trends are a likely culprit. “This likely reflects in part the wide geographic variation in new home construction activity,” said Mark Palim, Fannie Mae vice president and deputy chief economist. “Our latest survey data suggest that sellers may be losing some of their negotiating power due to the increased supply.”
• The percentage of Fannie Mae respondents who said home prices will rise over the next 12 months decreased from 41% to 37%, while the percentage who say home prices will decline increased from 21% to 25%.
   

The context: Mortgage rates declined meaningfully through late July and August, reducing median monthly payments to their lowest levels in six months.

• Still, the improvement in affordability has failed to shift a meaningful number of buyers off the sideline in August.
• The National Association of Realtors (NAR) reported the lowest pending home sales reading in 23 years in July.
   

The big picture: Supported by the latest employment data and largely explaining consumers’ expectations for a dip in borrowing costs, the Federal Reserve is widely anticipated to cut its benchmark interest rate by 0.25% (25 basis points) following its meeting on Sept. 17-18., though analysts say this rate cut is already priced into markets.

• The percentage of Fannie Mae respondents who say they are not concerned about losing their job in the next 12 months increased only slightly from 77% to 78% in August's HPSI, while the percentage who say they are concerned stayed the same as last month (21%).