Consumer attitudes about housing market reach a 2-year low

Homebuying sentiment cratered to a two-year low in April, with over three-fourths of consumers indicating that it was a bad time to make a purchase, according to researchers at Fannie Mae. 

Fannie Mae’s Home Purchase Sentiment Index, or HPSI, which is based on surveys of U.S. consumers that cover opinions about the buying and selling of homes, interest rates, housing costs, employment outlook and household income, dropped to its lowest overall level since the early weeks of the coronavirus pandemic in May 2020, the government-sponsored enterprise said. The index tumbled 6.4% from 73.2 in March to 68.5 in April, marking the third consecutive month the HPSI decreased. 

Regarding current views of the purchase market, the percentage of respondents who said it was a bad time to buy increased to 76% from 73% in March, while those calling it a good time to buy decreased to 19% from 24%, a net 8-percentage-point drop in “good” sentiment.

“The current lack of entry-level supply and the rapid uptick in mortgage rates appear to be adversely impacting potential first-time homebuyers in particular, evidenced by the larger share of younger respondents (aged 18 to 34) reporting that it’s a ‘bad time to buy a home,’ " Doug Duncan, Fannie Mae's chief economist, said in a press release.

But the uptick in pessimism is driven by more than high housing costs, Duncan noted. “Consumer perception regarding the ease of getting a mortgage also decreased across nearly all surveyed segments this month, suggesting to us that the benefit of the recent past’s historically low mortgage rate environment appears to have diminished, and affordability is poised to become an even greater constraint going forward,” Duncan added.

In fact, Fannie Mae’s HPSI slid, even as a growing percentage of consumers thought the costs of homes might have peaked. The net share of survey respondents who said home prices would rise in the next year dropped 9 percentage points month over month, with 25% saying prices will fall compared to 20% in March, and only 44% who thought they would rise, down from 48%.

While actual home costs might be easing, the rapidly accelerating mortgage rates have quickly taken a bite out of what potential buyers might be able to afford, offsetting any signs of price moderation. Since early March, the benchmark Freddie Mac 30-year rate has climbed by more than 1.5%. 

Data released last week by Redfin showed that the monthly mortgage payment on the median U.S. home asking price in April jumped 42% year over year to $2,404 based on the current 30-year rate. 

Mortgage Cadence similarly found affordability at top of mind, with close to 80% of consumers indicating they thought homes would become less affordable in 2022 compared to last year, while 72% were concerned about rising interest rates. Mortgage Cadence’s data was compiled in January just before mortgage rates took a sudden steep upturn. 

And more consumers don’t believe mortgage rates will decline any time soon, according to Fannie Mae, with the net share of Americans thinking rates will go up in the next year, rising by 3% in April from the previous month. While 5% of survey respondents said rates would head downward, up from March’s 4% share, the percentage of those thinking rates would continue their upward trajectory, increased to 73% from 69%.

Sellers seemed to be no more optimistic than buyers either. Fannie Mae said the share indicating that it was a good period to sell in April decreased to 72% from 74%, while those saying it was an inopportune time remained the same at 21%. 

Meanwhile, as record inflation persists, the number of consumers who saw their incomes growing has decreased, contributing to declining HPSI. The share who said household income in April was significantly higher on a year-over-year basis declined to 26% from 29% a month earlier, while 14% said it was significantly lower, increasing from 13%. 

The Home Purchase Sentiment Index findings largely correlated to homebuying trends Fannie Mae had been predicting since late last year, Duncan said. Data from other industry sources, such as the Mortgage Bankers Association, have also lined up with Fannie Mae forecasts.

“This sentiment is consistent with our forecast of decelerating home sales through the rest of 2022 and into 2023,” Duncan said.