Last month’s gain in consumer confidence in the housing market was short-lived, as the Fannie Mae Home Purchase Sentiment Index declined year-over-year for the first time in nearly two years.
February’s HPSI dropped 1.8 points from January to 71.6. For February 2024, the index was 72.8. The index is now at its lowest point since last July.
The reduction in market perception “was mostly due to a shrinking share of consumers expressing optimism about the direction of mortgage rates,” said Mark Palim, Fannie Mae chief economist, in a press release. “This growing pessimism makes sense, as mortgage rates had remained near the 7% threshold for a few months, including when we fielded this survey.”
Since breaking the 7% barrier in mid-January, the average weekly rate for the 30-year fixed loan dropped approximately 40 basis points to 6.63%, according to Freddie Mac’s March 6 report. The data collection for Fannie’s survey ended Feb. 18, just as rates started to decline.
The Zillow rate tracker, a more immediate measure based on offers made through the site, was at 6.33% at 10:45 on Friday morning, down 1 basis point on the day but up by that same amount from the previous week’s average.
Compared with January, fewer respondents felt mortgage rates would decline over the next 12 months, 30% versus 35%. Meanwhile, the percentage expecting an increase rose to 33% from 32%, while those that think they will stay the same totaled 36%, compared with 33%.
“The decline in sentiment was further impacted by consumers’ growing concerns about their own personal financial situations,” Palim said. “While some consumers may be slowly acclimating to the higher mortgage rate environment, the vast majority continue to believe it is a ‘bad time’ to buy a home — with high home prices cited as the primary sticking point.”
In what could be telling for the Spring home purchase season, the share of consumers who thought now is a good time to buy rose 2 percentage points to 24%. But that still leaves the net differential at a negative 53%, driven by the 76% that said it was a bad time.
While the view on home price movements among consumers has improved, more people say they will rise in the next 12 months, 41%, than those that think they will drop, 23%; in January, these were 43% and 22% respectively.
The percentage that believe they will remain unchanged grew to 35% from 34%.
Pessimism is setting in as the share of consumers that feel their personal financial situation to get worse over the next 12 months increased by 7 percentage points in February, to 22% from 15%.
Meanwhile, the percentage that feel it would improve, 37% (down from 43% in January), fell behind those that at best believe it will remain the same for the first time since October to 41%, unchanged from the prior month.
Fannie Mae leans negative when it comes to home purchase activity in the near term. “We continue to expect home sales activity to remain relatively light over our forecast horizon due to the ongoing lack of supply and overall unaffordability,” Palim said.
