Home buyer sentiment falls to its lowest level since 2011

Home purchase sentiment tumbled to its lowest point in over a decade, despite an increasing number of indicators pointing to price moderation. 

A mixed response to changes in the housing landscape emerged based on findings in Fannie Mae's Home Purchase Sentiment Index for July. Despite indications the housing market could slowly be moving toward greater balance, overall sentiment decreased for the fifth month in a row, falling 3% to 62.8 on a 100-point scale. The last time the index came in as low was in the final quarter of 2011. 

"The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability," said Doug Duncan, Fannie Mae's senior vice president and chief economist, in a press release.

In June, the HPSI came in at 64.8, while a year ago, the index sat 17% higher at 75.8. Fannie Mae's HPSI is calculated based on responses to six questions on the government-sponsored enterprise's monthly housing survey.

Even though the share of respondents who expected mortgage rates would head downward over the next year grew by from 5% to 6%, it did little to sway the mood upward on either side of the purchase transaction. Over the past two weeks, 30-year rate averages have come down significantly following steep accelerations in the spring and early summer but are still at least 2 percentage points higher year over year. The shares that expected rates to increase or stay at current levels over the next 12 months remained the same sizes as reported in June, 67% (increase) and 21% (stay the same). 

"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. 

After surging to record highs in 2021, signs of cooling home prices have also started to appear, according to data from several research groups, including Fannie Mae, Black Knight, CoreLogic and the Federal Housing Finance Agency. 

The trend may have contributed to a higher percentage of respondents saying they expect home prices to decrease over the next year, up 3% from 27% to 30%, Fannie Mae reported. Meanwhile the share who said prices will rise fell 5% from 44% to 39%, leading to a net 8% decrease in the percentage predicting price hikes.  

But price moderation does not necessarily translate to improved purchase sentiment, according to Duncan.

"With home price growth slowing, and projected to slow further, we believe consumer reaction to current housing conditions is likely to be increasingly mixed," he said. 

"Some homeowners may opt to list their homes sooner to take advantage of perceived high prices, while some potential home buyers may choose to postpone their purchase decision believing that home prices may drop."

Consumer responses on whether it was a good time to either buy or sell reflected some of the unease and confusion in quickly changing economic conditions. The share of consumers who think it is a good time to buy fell from 20% in June to 17% in July, while those who said it was a bad time to buy increased from 75% to 76%, resulting in a net 4% decrease.. 

At the same time, the percentage who thought it was a good time to sell also dropped by a net 2% month-over-month. After a net 15-percentage-point drop last month among those who thought it was a good time to sell, the continued downward trend indicates softening sales conditions, according to Duncan. Those saying it was a good time to sell in July decreased from 68% in June to 67%, while respondents with the opposite sentiment increased from 26% to 27%.

"Overall, this month's HPSI results appear to confirm our forecast for moderating home sales over the coming year," Duncan said.