Housing Sentiment Continues Downward Trend Despite Favorable Economy

Fannie Mae, Washington, D.C., said its Home Purchase Sentiment Index fell in October, continuing its recent downward trend.

Fannie Mae attributed the 2.0 point drop (to 85.7) to decreases in five of the six components, including those measuring consumers’ home buying and selling attitudes. The net share of Americans who said it is a good time to buy a home fell 5 percentage points, and the net share who said it is a good time to sell a home fell 3 percentage points. Meanwhile, the net share of survey respondents who expect home prices to go up fell 2 percentage points, and the net share who expect mortgage rates to go down fell 1 percentage point. Respondents also expressed a slightly more pessimistic view on job security, with the net share who are confident about not losing their job falling by 1 percentage point.

“While the October drop was broad-based, all but one of the six HPSI components declined–the net share of consumers who said it’s a good time to buy a home posted the largest decrease, tying its second lowest reading in the survey’s history,” said Doug Duncan, senior vice president and chief economist with Fannie Mae. “The further erosion of buying sentiment occurred despite generally positive views of the economy.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said the housing market is “constantly evolving,” noting weakening new and existing home sales, slowing home price appreciation and rising inventories have given buyers more negotiating power.

“We term the current environment as a soft sellers’ market, as sellers remain in a stronger position than buyers due to the continued lack of supply in desirable markets,” Vitner said. “Buyers are a little more hesitant, however, due to higher mortgage rates and the impact of tax reform on higher priced homes.”

Vitner said first-time buyers are increasingly struggling with affordability, and higher mortgage rates are discouraging many potential buyers. “With demand cooling, inventories have begun to increase and price appreciation has moderated,” he said.

Duncan said the contrast between the Fannie Mae survey’s findings of weak home buying sentiment and overall economic optimism mirrors the broader economy. “While economic growth posted the fastest back-to-back pace in four years in the third quarter, residential investment declined for the third consecutive quarter, a first for the current expansion,” he said.