Consumers Dial Back Optimism on Housing; Get Creative on Down Payments

Fannie Mae, Washington, D.C., said its Home Purchase Sentiment Index fell in April, as consumers tempered their optimism about the housing market despite improved mortgage rate expectations.

The Index dipped by 1.5 points in April to 88.3, offsetting some of the prior month’s 5.5 point jump and fell by 3.4 percent from a year ago. A decrease in the “Good Time to Buy” component helped drive the index lower, despite another supportive mortgage rate outlook from consumers. The net share of respondents expecting mortgage rates to go down over the next 12 months rose by 12 percentage points over March and April.

“Households remain upbeat about economic activity but have more mixed attitudes toward the housing market,” said Doug Duncan, senior vice president and chief economist with Fannie Mae. “While home selling confidence remains strong and more consumers on net expect mortgage rates to decline over the next year, respondents walked back some of their buying optimism from March.”

Other report highlights:

–The net share of Americans who say it is a good time to buy a home decreased 8 percentage points to 14%. This component is down 15 percentage points from the same time last year.

–The net share of those who say it is a good time to sell a home remained unchanged at 43%. This component is down 2 percentage points from the same time last year.

–The net share of those who say home prices will go up decreased 2 percentage points to 36%. This component is down 13 percentage points from the same time last year.

–The net share of Americans who say mortgage rates will go down over the next 12 months increased 5 percentage points to -40%. This component is up 8 percentage points from the same time last year.

–The net share of Americans who say they are not concerned about losing their job decreased 6 percentage points to 74%. This component is down 2 percentage points from the same time last year.

–The net share of those who say their household income is significantly higher than it was 12 months ago increased 2 percentage points to 22%. This component is up 4 percentage points from the same time last year.

Duncan said improving perceptions of income gains and a softening home price growth outlook should help support housing demand. “However, increasing expectations among consumers that mortgage rates will continue to be favorable for some time will likely gain additional support following last week’s Fed meeting–and may also be reducing their urgency to buy,” he said.

Meanwhile, Freddie Mac, McLean, Va., released its May I, which examines perceptions prospective homebuyers have around down payments, various funding sources they use and how families and others assist them in fulfilling the dream of homeownership.

“In addition to the common misbelief that lenders require a 20 percent down payment on a mortgage, borrowers often mistakenly believe that a down payment can only come from savings,” said Freddie Mac Chief Economist Sam Khater. “While borrowers most often use savings for their down payment, they also frequently use assistance from government or nonprofit organizations, gift money from friends and family, and seller contribution or proceeds from a previous home sale.”

A Freddie Mac analysis of the National Survey of Mortgage Originations found 70 percent of homebuyers used savings, inheritance, other assets or retirement monies for a down payment in 2016, down from 79 percent in 2013. The analysis also noted over that period, 31 percent of homebuyers used proceeds from the sale of another property, up eight percentage points from 23 percent, and home buyers who used assistance or a loan from a nonprofit or government agency, doubled from 5 to 10 percent.

“We believe the demand for down payment assistance of all types will increase in the coming years as more Millennials look to become homeowners,” Khater said. “Nearly 25 percent of borrowers turn to ‘The Bank of Mom and Dad’ to help with the down payment. Moreover, family members are also providing support by co-signing for a mortgage or listing themselves as a co-borrower, especially among first-time homebuyers. Unfortunately, that won’t help everyone.”

A Freddie Mac analysis of its purchase loan portfolio showed last year, 3.2 percent of first-time homebuyers listed a family member who was 55 years or older as a co-borrower. In high cost markets such as San Jose, 7.2 percent of first-time homebuyers listed a family member who was 55 years or older as a co-borrower.

The report said in 2016, 61 percent of respondents used down payment sources other than savings or help from friends and family. Of them, 10 percent used assistance or a loan from a nonprofit or government agency. Excluding the dominant source of personal savings, around 85 percent of respondents used only one source of funds for their down payment.