Despite Hurdles, Overall Housing Sentiment Nears Record High Again
Low inventories, multiple bids and escalating home prices have done little to dampen enthusiasm for people wanting to buy homes, said Fannie Mae, Washington, D.C.
The company reported its Home Purchase Sentiment Index jumped by 1.2 points in August to 88.0, just below the record high set in June. Driving the Index were two of its six components: the good time to sell component and the mortgage rates expectations component.
The net share who reported that now is a good time to sell a home rose by 8 percentage points in August and is now up by 21 percentage points compared to a year ago. Meanwhile, the net share who said it’s a good time to buy fell by 5 percentage points in July and is down 16 percentage points year-over-year.
Fannie Mae said respondents continue to cite high home prices as the most important reason behind the bad time to buy and good time to sell indicators. The net share of those who believe mortgage rates will go down increased 4 percentage points, while the net share of respondents who believe home prices will go up increased 1 percentage point. Respondents also expressed a reduced sense of job security, with the net share who say they are not concerned about losing their job falling 1 percentage point. Finally, the share of consumers who reported that their income is significantly higher than it was 12 months ago remains unchanged.
“In the early stages of the economic expansion, home selling sentiment trailed home buying sentiment by a significant margin. The reverse is true today,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The net good time to sell share is now double the net good time to buy share, with record high percentages of consumers citing home prices as the primary reason for both perceptions. Such a sizable gap between selling and buying sentiment, if it persists, could weigh on the housing market through the rest of the year.”
Joel Kan, associate vice president of industry surveys and forecasting with the Mortgage Bankers Association, said continued growth in the purchase market will be driven by increasing household formation and housing demand, given the economic and job market strength.
“As seen in the first two quarters of 2017, household formation in owner occupied units continues to pick up,” Kan noted in the most recent MBA monthly economic commentary (https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary/economic-commentary-archives). “A boon for the housing market is that the Millennials are reaching the ages where they are ready to buy a home.”
Kan noted a challenge for the market over the last decade has been the home building industry’s slow return to capacity. “The home building industry was decimated by below normal business and is just now beginning to regain the capacity to deliver new homes,” he said.
MBA estimates total mortgage originations at $1.6 trillion in 2017, including $1.1 trillion in purchase volume and $538 billion in refinance volume. Purchase volume is expected to grow slowly in 2018 and 2019 as the younger generations move into homeownership, but refinance volume will remain low as rates increase.
Fannie Mae reported the net share of survey respondents who say home prices will go up increased by 1 percentage point in August to 48%, continuing the upward trend this quarter. The net share of those who say mortgage rates will go down over the next 12 months rose 4 percentage points to -45%. The net share of respondents who say they are not concerned about losing their job fell by 1 percentage point to 74%. The net share of respondents who say their household income is significantly higher than it was 12 months ago remains unchanged from July at 16%.
