BAM Key Details:
- High home prices and elevated mortgage rates have taken a toll on consumer perceptions of the housing market.
- In January, the Fannie Mae Home Purchase Sentiment Index (HPSI) rose for the third consecutive month, but it remains well below pre-pandemic highs.
- Three components of the index increased month-over-month, but year-over-year, the full index dropped 10.2 points.
Housing unaffordability weighs heavily on the consumer’s perception of the market.
That’s just one of the latest findings from the Fannie Mae Home Purchase Sentiment Index (HPSI) for January 2023, which registered a small month-over-month improvement, along with a significant annual decline.
Here’s what you need to know.
How have consumer perceptions of the market changed?
The total figure for the Home Purchase Sentiment Index increased for the third consecutive month, rising 0.6 points to 61.6, with three of the six components showing month-over-month improvement.
In spite of that modest monthly uptick, the full index is down 10.2 points from a year ago.
January’s HPSI results showed that consumer sentiment toward the housing market remains subdued by historical standards. For consumers, the same affordability issues are persisting, as they continue to indicate that high home prices and high mortgage rates make it a ‘bad time to buy’ a home. The latest survey data also indicated that the majority of consumers expect home prices to decrease or remain flat over the next year, which may incentivize some potential homebuyers to delay their purchase decision. Although ‘good time to sell’ sentiment ticked upward this month, it’s still much lower than it was a year ago, as purchase affordability remains seriously constrained and mortgage demand has receded. Until we see improvements in affordability via lower home prices and mortgage rates, we expect home sales to remain muted in the coming months.
The Home Purchase Sentiment Index (HPSI): Component Highlights
For a fuller picture of January’s profile of consumer sentiment, Fannie Mae provides the following breakdown of each of the six components and how they changed month to month.
- Good/Bad Time to Buy—The share of survey respondents saying now is a good time to buy a home dropped in January from 21% to 17%, while the share of those saying it’s a bad time to buy went up from 76% to 82%. So, the net share of those saying now is a good time to buy dropped 9 percentage points compared to the previous month, tying a low last seen in October 2022.
- Good/Bad Time to Sell—The share of respondents saying now is a good time to sell a home went up from 51% to 59%, while the share saying it’s a bad time to sell went down from 42% to 39%. So, the net share of respondents saying now is a good time to sell increased 11 percentage points compared to the previous month.
- Home Price Expectations—The share of respondents saying home prices will likely go up in the next 12 months went up from 30% to 32%, while the share saying home prices will drop remained unchanged at 37%. The net share of those saying home prices will likely increase went up 2 percentage points compared to the previous month.
- Mortgage Rate Expectations—The share of respondents sharing mortgage rates will likely go down in the next 12 months dropped from 14% to 13%, while the share expecting mortgage rates to go up increased from 51% to 52%. The share expecting mortgage rates to remain the same went up from 31% to 33%. So, the net share of those expecting mortgage rates to decline over the next 12 months dropped 2 percentage points compared to the previous month.
- Job Loss Concern—The share of respondents saying they’re not concerned about losing their job in the next 12 months remained unchanged at 82%, while the share saying they are concerned went up from 17% to 18%. The net share of those saying they’re not concerned about losing their job remained unchanged from the previous month. Note: The net share number remained the same due to rounding.
- Household Income—The share of respondents saying their household income is significantly higher than it was a year ago dropped from 25% to 22%, while the share saying their household income is significantly lower dropped from 15% to 10%. The share saying their household income is roughly the same increased from 59% to 67%. So, the net share of those saying their household income is significantly higher than it was a year ago increased 2 percentage points compared to the previous month.
More about the Home Purchase Sentiment Index and the National Housing Survey
The Home Purchase Sentiment Index (HPSI) distills information gathered from Fannie Mae’s National Housing Survey® (NHS) into a single number.
That number signifies overall consumer home purchase sentiment, including current views and forward-looking expectations regarding the housing market and whether it’s a good time to buy or sell a home.
The HPSI is the product of consumer answers to six NHS questions, which correspond to the six components listed above.
The NHS asks each respondent more than 100 questions to provide the most detailed overview of consumer sentiment—six of which are the foundation for the HPSI.
Buy or Rent?
One encouraging bit of news comes as a result of one of the questions not included in the HPSI.
The NHS asks whether the respondent would buy or rent their next home if they were going to move. The share of respondents who said they would buy a home increased by 9 percentage points to 71%, while the share saying they would rent decreased 3 percentage points to 28%.
Fannie Mae conducted the January 2023 NHS between the 3rd and 20th of January, 2023, with most of the data collection occurring within the first two weeks of this period.
Top takeaways for real estate agents
With consumer perceptions of the housing market somewhat depressed compared to a year ago, it’s not surprising that so many would-be buyers and sellers are still on the sidelines.
The average person is not an expert on the housing market. You, as a real estate professional, need to educate yourself on a daily basis on housing market conditions and any changes that could affect buyers and sellers in your area. Know exactly what today’s buyers and sellers face and how to help them make the most of their advantages.
Because some of them can’t afford to wait any longer. And some are waiting for the agent who can help them make sense of what, for them, is a confusing maelstrom of mixed signals.
If anyone can make sense of that storm, it’s you. Be the agent they can trust to guide them through it.