BAM Key Details: 

  • The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 3.7 points in December 2022 to 61.0.
  • That number is just slightly higher than the all-time low set in October. 
  • Only 21% of respondents said it’s a “good time to buy,” but that’s more than the 16% from October and November.

The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 3.7 points in December 2022 to 61.0. While that number is only slightly higher than the all-time low index set in October, buyers are clearly more motivated to re-enter the market, given the smallest incentive to do so.

Only 21% of survey respondents believe it’s a “good time to buy,” most likely due to ongoing affordability challenges from higher mortgage rates and persistently high home prices. 

But that number is higher than the 16% from the previous two months. And the share of respondents now saying it’s a “bad time to buy” decreased. 

More buyers are motivated to test the waters. So, what are they likely to find? And how can you help them?

Three of the six components of the HPSI improved from November to December

Three of the six components of the HPSI showed a month-over-month improvement in December: 

  • Home buying conditions 
  • Mortgage rate outlook 
  • Job security

As for the first two, more respondents now believe home prices will drop and mortgage rates will come down in the next 12 months.

Regarding job security, the share of respondents who said they were concerned about losing their jobs in the next 12 months decreased from 21% to 17%. Fewer, on the other hand, reported a significant increase in their household income compared to a year ago.

Compared to December 2021, the full index has dropped 13.2 points. 

The HPSI remains very low by historical standards, particularly the ‘good time to buy’ component, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism.

Doug Duncan

Fannie Mae’s Senior Vice President and Chief Economist

Buyer confidence rises as home prices drop

While mortgage rates are still double what they were a year ago, home prices have been dropping since June, thanks to cooling buyer demand, and consumers are feeling better about the housing market—which is far less competitive than it was a year ago.

According to CoreLogic, home prices in November were 2.5% lower than the 2022 peak in spring. They were still more than 8% higher compared to a year ago, but that’s half the annual comparison for June 2022.

Mortgage rates hit a recent high of 7.37% in October 2022 but have since fallen back into the mid-6% range, where they remained throughout November and into December. As of Friday, January 6, 2023, according to Mortgage News Daily, the rate has dropped to 6.2%.

As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers, as even small declines in rates and home prices — from the perspective of the buyer — may not produce sufficient purchasing power. At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable.

Doug Duncan

Fannie Mae’s Senior Vice President and Chief Economist

Seller sentiment continued its downward slide

While buyer sentiment improved in December compared to the previous month, seller sentiment continued its downward slide. 

The share of respondents saying “Now is a good time to sell” dropped from 54% to 51% month to month, while a larger share said, “Now is a bad time to sell.”

Historically, the winter season brings a slower housing market, and some agents have said sales activity for their area is “frozen.” Pending home sales in November fell more than expected, suggesting closed sales in January might be lower as well. 

Homeowners still motivated to sell are offering more concessions to attract (or persuade) buyers. About 42% of sellers did so in Q4 2022—the highest percentage in recent years, according to Redfin.

That’s up from a little over 30% in both Q3 2022 and Q4 2021—and more than the previous high of 40.8% set in the three month period ending July 2020, at the start of the pandemic.

What are agents seeing on the ground level?

Byron Lazine and Nicole White discussed the uptick in the Home Purchase Sentiment Index on this week’s episode of The Real Word

To get her boots-on-the-ground perspective on this, Byron asked Nicole what agents were telling her and what she was seeing in her own business in Connecticut—just in the first ten days of January.

I will say personally I don’t think my business has ever been busier in the first ten days of January than they have these last ten days… I mean, December was bleak, and I think we’ve had more under-contract in these first ten days of January than we did for all the month of December so far. People are out, people are looking, people are wanting. Properties that have been on the market for a while are now finally going under contract…. I just put one under contract; it was on the market for $550K, and we had to go $20K over list price. There were four offers in on that one.

Nicole White

Despite mortgage rates in the low 6s, two out of five people are saying, “I still want to buy a home.” Byron pointed out that he’s seeing incredible demand among buyers right now: “Multiple offer situations, anywhere near the median price point this past weekend, were rampant!” 

At the end of the day, as Nicole added, “It all comes down to inventory.” 

As a real estate professional, you need to educate (consumers) on what’s happening at these median price points. You can carve out Phoenix and Las Vegas if you want to, but the far majority of towns across America in the median price points are not seeing any adjustments on those home values. In fact, as we sit here in the first ten days of January 2023, we’re seeing multiple offers on well-priced median-priced homes. We’re seeing people go up and over asking price… It’s happening again. And it’s happening with double the interest rate of the first quarter of 2022.

Byron Lazine

Many markets are still in an inventory crisis. And until we correct that, steep declines in home prices are unlikely. But even small changes to that, combined with small downward movements of the mortgage rate, are clearly encouraging more buyers to enter the market.

Top takeaways for real estate agents

The data for the Fannie Mae Home Purchase Sentiment Index® doesn’t come from nowhere. Survey respondents come from across the U.S., weighing in on what they’re experiencing in their markets, insofar as they’re able to gauge the six components of the index. 

That data is important. But it doesn’t necessarily reflect what agents are seeing at ground level. 

As the name suggests, the index shows the predominant human sentiments on the housing market, as well as each respondent’s concerns about job security and the growth (or stagnation) of their household income. 

A variety of factors can sway a person’s sentiment on the housing market in either direction. Concerns about job security and income hit closer to home. 

But you, as a real estate professional, can help your clients and community see all the components of the HPSI more clearly and in context by presenting the most up-to-date, reliable information and helping them to make more informed and confident decisions.