Despite some fluctuations, the Home Purchase Sentiment Index (HPSI) by Fannie Mae revealed a consistent consumer sentiment in August, reflecting a continuing trend of low confidence in the housing market. As per the latest numbers, while 66% of consumers feel it's an opportune moment to sell, a mere 18% believe it's the right time to buy.
Additionally, despite the significant rise in rates over the last couple of years, only 18% expect mortgage rates to drop in the next 12 months. Overall, the full index is up 4.9 points year over year.
"Mortgage rates once again breached the 7% mark in August, hitting a 22-year high and doing no favors for consumer sentiment," Fannie Mae Chief Economist Doug Duncan said. "Consumers remain pessimistic toward the housing market in general and homebuying conditions in particular."
According to Duncan, the general pessimism is driven by significant home price appreciation and the rise in mortgage rates. A consequence of this is a shift in demand towards newly constructed homes since many existing homeowners are deterred from selling because of their comparatively low mortgage rates. This phenomenon has been a boon for homebuilders, although it has disrupted the traditional housing cycle.
The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for July 2023 shows mortgage applications for new home purchases increased 35.5% compared to a year ago. Compared to June 2023, applications increased by 0.2%. MBA estimates new single-family home sales, which have consistently been a leading indicator of the U.S. Census Bureau’s New Residential Sales report, were running at a seasonally adjusted annual rate of 677,000 units in July 2023.
Some of the report's highlights include:
- A net unchanged sentiment regarding it being a good time to buy.
- A 5 percentage point increase in the net share who believe it's a good time to sell.
- A slight decrease in the net share who expect home prices to rise over the next 12 months.
- On the financial front, the report showed an increase in respondents who have experienced a significant rise in household income over the past year. However, there's a slight uptick in job loss concern, potentially reflecting broader economic apprehensions.
While the housing market presents some complexities, the prevalent sentiment is one of caution as consumers navigate this fluctuating landscape.
"From a historical perspective, the current housing market is unusual, as demonstrated in part by the HPSI and its recent plateauing," Duncan said. "Given the significant home price appreciation and rapid rise in mortgage rates, it is very much a tale of two markets, at least from a consumer perspective. Of course, a third perspective exists among homebuilders, who are currently thriving amid the surge in demand for new home construction, a function of the unusual dynamics at play in the existing home space between would-be sellers and would-be buyers, as well as changing labor market dynamics owing to the ongoing prevalence of remote work."
