As Recession Looms, Consumers See Tide Turning In Favor Of Homebuyers

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Sellers still have the upper hand but the tide may be turning in favor of homebuyers even as worries about a potential recession weigh on consumer sentiment, according to Fannie Mae’s latest monthly National Housing Survey.

It found that 81 percent of consumers surveyed in June thought the economy was on the wrong track — a record high since Fannie Mae began conducting the survey in 2010.

But for the first time since February, the share of consumers who think it’s a good time to buy a home increased from the month before. While only 20 percent of those surveyed in June thought it was a good time to buy — that’s up from 17 percent in May, an all-time survey low.

Doug Duncan

“Interestingly, consumers’ perceptions of home-selling conditions declined meaningfully in June, returning to pre-pandemic levels,” said Fannie Mae Chief Economist Doug Duncan in a statement. “This was particularly true for homeowner respondents.”

But the perception among consumers that conditions are subtly shifting in favor of homebuyers at the expense of sellers wasn’t enough to move Fannie Mae’s Home Purchase Sentiment Index (HPSI) in a positive direction.

The HPSI distills six questions from the National Housing Survey that factor into home purchase decisions. In addition to whether they think that it’s a good or bad time to buy or to sell the HPSI factors in where consumers think home prices and mortgage rates are headed, how concerned they are about losing their jobs and whether their incomes are higher than they were a year earlier.

Source: Fannie Mae National Housing Survey, June 2022.

With four of the index’s six components decreasing from May to June — including the components associated with perceived job stability and household income — the HPSI fell 3.4 points in June to 64.8, its second-lowest reading in a decade.

“In June, a survey-record 81 percent of consumers reported that the economy is on the wrong track, suggesting to us — and corroborated by other recently released consumer confidence measures — that people appear to be growing increasingly frustrated with inflation and the slowing economy,” Duncan said. “Moreover, 21 percent of respondents expressed job stability concerns, the highest percentage in 18 months. This month’s HPSI reading reflects these macroeconomic and personal financial concerns, with housing sentiment additionally diminished by the recent rapid increases in mortgage rates.”

Source: Fannie Mae National Housing Survey, June 2022.

Duncan said consumers, “especially those in prime homebuying groups, appear to be feeling the affordability pinch of higher mortgage rates: Approximately half of all respondents indicated that it would be ‘difficult’ to get a mortgage, the highest such percentage since 2014. As a whole, this month’s HPSI results are consistent with our forecast of a slowing housing market through the rest of this year and next.”

In their June forecast, Fannie Mae economists predicted home sales will fall 13.5 percent this year and pinpointed higher mortgage rates as the housing market’s “primary constraint.” The Federal Reserve’s efforts to combat inflation “will likely result in a recession” next year, they concluded.

Source: Fannie Mae National Housing Survey, June 2022.

Although a recession could prompt the Fed to dial back monetary policy tightening that’s driven up mortgage rates, only 5 percent of consumers surveyed in June expect mortgage rates to go down in the next 12 months.

But the percentage who expect mortgage rates to keep going up decreased from 70 percent in May to 67 percent in June, and the share who think mortgage rates will stay the same increased from 20 percent to 21 percent. As a result, the net share of Americans who say mortgage rates will go down over the next 12 months increased 4 percentage points month-over-month.

Source: Fannie Mae National Housing Survey, June 2022.

With the share of consumers who say it’s a good time to buy a home increasing from 17 percent to 20 percent, and the percentage who say it is a bad time to buy decreasing from 79 percent to 75 percent, the net share of those who say it is a good time to buy increased 7 percentage points from May to June.

Source: Fannie Mae National Housing Survey, June 2022.

The percentage of respondents who say it is a good time to sell a home decreased from 76 percent in May to 68 percent in June, while the percentage who say it’s a bad time to sell increased from 19 percent to 26 percent. As a result, the net share of those who say it is a good time to sell decreased 15 percentage points month-over-month.

Source: Fannie Mae National Housing Survey, June 2022.

Less than half of consumers expect home prices to keep going up over the next year and a growing proportion thinks they’ll go down. In June, 44 percent of those surveyed said they expect home prices to go up in the next 12 months, down from 47 percent in May. With 27 percent of those surveyed in June expecting home prices to go down, the net share of Americans who say home prices will go up decreased 7 percentage points from May to June.

An analysis released by Black Knight this week found that home price appreciation decelerated in May at rates not seen since 2006. But even at the current rate of deceleration, it would take more than 12 months for annual home price appreciation to come back down to historic norms of 3 to 5 percent, Black Knight concluded.

Source: Fannie Mae National Housing Survey, June 2022.

The share of consumers surveyed in June who said the economy is on the wrong track rose 4 percentage points to 81 percent, a new survey high. Only 14 percent thought it was on the right track, a new survey low.

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