Consumer sentiment toward housing at lowest point since COVID onset

High rates and low affordability brought consumer housing sentiment near a decade low in June as overall economic pessimism is becoming widespread, according to the latest data from Fannie Mae.

The Fannie Mae Home Purchase Sentiment Index, a measure of views and forward-looking expectations of housing market conditions based on consumer surveys, dropped to its lowest level since the first months of the coronavirus pandemic — and second lowest in a decade — last month. The HPSI dipped 3.4 points to 64.8 on a 100-point scale, a drop of 5% from May when the index posted a reading of 68.2. On a year-over-year basis, the index came in 19% lower from 79.7.

Views on home selling, job outlook and household income all trended negative, helping drive decreased economic optimism. 

“In June, a survey-record 81% 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,” said Doug Duncan, Fannie Mae senior vice president and chief economist, in a press release.

“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,” he said.

In a housing market currently encountering the effects of decreased affordability, the share of consumers who said it was a good time to sell fell to 68%, compared to 76% in May and 77% one year ago. At the same time, the share considering it a bad time to sell grew to 26% from 19% last month and 15% year over year.

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

In another sign the market is trending away from sellers, the share of consumers who expect current home-price levels to go down grew to 27% from 23% in May, while the percentage anticipating costs to increase fell to 44% from 47%.

Meanwhile, on the buyer side, respondents indicating current purchase conditions were good increased to 20% from 17% month over month but was off from 32% in June 2021. 

Mortgage rate movements are making it challenging for aspiring homeowners with current benchmarks over 2% higher than a year ago. For the first time in almost seven years, more consumers, 49%, said it was difficult to obtain a mortgage under current market conditions, versus 47% who considered it easy. The net share of consumers expecting rates to decrease from current elevated levels over the next year grew by 4%, though, compared to May.  

Of growing concern to many were macro trends surrounding household income and job outlook, which helped drive HPSI numbers down. Amid rising inflation, the share who indicated their household income was significantly higher from one year ago fell by a percentage point from 26% to 25%, while those who said it was noticeably lower remained unchanged at 16%. 

A greater percentage also said they had concerns about their employment status over the next year, with the share worried about losing their job increasing to 21% from 16% a month earlier, the highest in 18 months, Duncan said.

Fannie Mae’s latest index echoes similar reports of consumer malaise coming from the University of Michigan’s index of consumer sentiment, which dipped to its lowest recorded point ever in June, falling 14.4% from May’s number. Inflation played a large part in that index’s downturn as well, as 47% of consumers blamed it for lowering their living standards. According to the university’s data, 79% consumers also forecasted bleak business conditions for the year ahead, the highest share since 2009. 

While Fannie Mae’s HPSI may point to a souring mood among consumers, it was not wholly unexpected, according to Duncan.

“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,” he said.