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Would-be homebuyers were seemingly unfazed by last month’s turmoil in the banking system, but a sizable majority think it’s a bad time to buy a home citing unfavorable mortgage rates and high home prices, according to a monthly survey by researchers at Fannie Mae.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) rose 3.3 points in March to 61.3 as consumers became more confident about homeselling conditions and less worried about losing their jobs.
But the HPSI is down 11.9 points from a year ago and is only 4.6 points above an all-time low of 56.7 seen in October, when mortgage rates were soaring above 7 percent for the first time in two decades.
Source: Fannie Mae National Housing Survey
Mark Palim
“Despite the recent banking turbulence, the HPSI increased modestly in March, although it still remains near its historical low,” said Fannie Mae Deputy Chief Economist Mark Palim in a statement. “With the spring homebuying season now upon us, a large majority of consumers continue to believe that it’s a bad time to buy a home.”
Fannie Mae’s Home Purchase Sentiment Index (HPSI) is based on six questions from the mortgage giant’s monthly National Housing Survey, which has polled about 1,000 adults since 2010. Of the roughly 100 questions asked, six are distilled into a single number, the HPSI.
Four of the HPSI’s six components improved from February to March with conditions for buyers and household income being the exceptions.
Source: Fannie Mae National Housing Survey
Only 20 percent of those surveyed in March said it’s a good time to buy, while 79 percent said it was a bad time to buy. Although those numbers were pretty much unchanged from February, the net share who said it’s a good time to buy decreased by 1 percentage point due to rounding.
“Homeowners sharing this belief frequently cited ‘unfavorable mortgage rates’ as the primary reason for their pessimism, further corroborating the often-discussed disincentive — or ‘lock-in effect’ — that many mortgage holders who may be considering moving have toward giving up their lower rates,” Palim said. “By contrast, surveyed renters once again indicated that high home prices are their primary concern for buying a home.”
Source: Fannie Mae National Housing Survey
Since hitting 2023 peaks in early March, mortgage rates have been in decline as financial markets digest the probability that with fears of a recession looming, the Federal Reserve may ease up or even reverse rate hikes aimed at curbing inflation.
While housing industry economists think mortgage rates have peaked and will trend down later this year and next, many consumers haven’t gotten that message yet.
Only 12 percent of consumers surveyed by Fannie Mae in March said they expected mortgage rates to go down in the next 12 months, compared to 15 percent in February. But the share of consumers who expect that rates will go up declined from 55 percent in February to 51 percent in March. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 1 percentage point month over month.
Source: Fannie Mae National Housing Survey
“Unsurprisingly, consumers also expressed apprehension about the direction of home prices,” Palim said, with respondents evenly split over whether home prices will go up or down over the next 12 months.
With 32 percent expecting home price increases, 31 percent envisioning price declines and 35 percent feeling like prices will stay the same over the next year, the net share who expect home prices to go up increased by 4 percentage points from February to March, to an equilibrium of 0 percent.
“With affordability constraints, the lock-in effect, and home price direction uncertainty weighing heavily on consumers’ minds, we maintain our forecast that total home sales for the year will remain subdued,” Palim said.
Last month, Fannie Mae forecasters predicted that the failures of Silicon Valley Bank and Signature Bank could serve as the catalyst for a modest recession and also make jumbo mortgages more costly if small and midsized regional banks tighten lending standards.
Source: Fannie Mae National Housing Survey
While home price appreciation has slowed or reversed in many markets, a majority of consumers still see conditions as favorable to sellers.
The percentage of respondents who said it’s a good time to sell a home increased from 54 percent in February to 58 percent in March. With the percentage who said it was a bad time to sell falling to 40 percent, the net share of those who say it is a good time to sell increased 8 percentage points from February to March, to 18 percent.
Source: Fannie Mae National Housing Survey
Another positive for consumer sentiment is that fears of job loss declined from February to March.
The percentage of respondents who said they were not concerned about losing their job in the next 12 months increased to 78 percent in March, while the percentage who said they were concerned decreased to 21 percent. Those improvements pushed the net share of those who were not concerned about losing their job up 7 percentage points from February to March.
Source: Fannie Mae National Housing Survey
While fears of job loss declined in March, only one in four Americans said they thought the economy was on the right track last month.
Although the question isn’t factored into the Home Purchase Sentiment Index, 74 percent of those surveyed in March said they thought the economy was on the wrong track. That’s up from 71 percent in February but well short of a record-high 81 percent in June 2022.
Editor’s note: This story has been updated to correct that 74 percent of Americans surveyed by Fannie Mae in March thought the economy was on the wrong track.
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