According to Fannie Mae, consumer sentiment towards the housing market is now at an 11-year low. Fannie Mae’s Home Purchase Sentiment Index (HPSI) declined by 2.0 points in July to 62.8. The index hasn’t been that low since 2011, when the housing market still had yet to recover from the financial crisis of 2007-2008 fully. The latest low point comes after record high sentiment in 2019.
Overall, consumers believe that the current market favors sellers. A relatively small 17% of surveyed Americans believe that now is a good time to buy a home, while 67% believe now is a good time to sell. However, 76% said that it was a good time to sell in May, indicating that a greater share of the population believes that it is neither a good time to sell or buy a home in the current market.
High Interest Rates are a Major Concern Driving Low Consumer Sentiment
According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage was 5.22% as of the week ending August 11th. Rates peaked close to 6.0% in June but have trickled back down over the last couple of months. Still, current rates are nearly double what they were a year ago. During the week ending August 12, 2021, interest rates on a 30-year fixed-rate mortgage averaged 2.87%.
Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, explained that the main reason for low consumer confidence in the housing market is high interest rates. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home,” Duncan said in a statement.
Duncan continued, saying that “consumers appear to be indicating that selling conditions are softening…with home price growth slowing, and projected to slow further, we believe consumer reaction to current housing conditions is likely to be increasingly mixed”.
30% of surveyed consumers think that home prices will fall in the near future, while a decreasing percentage believes that prices will rise. In his statement, Duncan stopped short of predicting a price decline but also claimed that “this month’s HPSI results appear to confirm our forecast for moderating home sales over the coming year.”
Overall Consumer Confidence Increased in July After a Year of Decline
Polling firm Morning Consult reported that overall consumer confidence increased by 0.4% in July, after 12 straight months of declining sentiment. 30 of the 50 states had an increase in consumer confidence. Most notably, blue states have significantly higher consumer confidence than red states.
“While it remains an open question whether this upswing in sentiment is just a momentary reprieve or the beginning of a trend, it does provide optimism the U.S. economy can avoid a sharp pullback in consumer demand that would increase the odds of a recession,” said John Leer, chief economist at Morning Consult.