Homebuyer optimism continues to shrink

Buyer attitude about the housing market in September was at its lowest point in nearly 11 years, when the overhang of the Great Recession drove sentiment, Fannie Mae reported.

Its Home Purchase Sentiment Index declined for the seventh consecutive month, dropping 1.2 points to 60.8 in September from 62 in August. While the index was first made public for August 2015, a retrospective look put the index at 60.2 for October 2011.

One year ago, the index was 74.5, rising to 75.5 in October 2021 before trending downward in succeeding months.

“Consumers’ expectation that home prices will decrease matched a survey high, with a higher percentage of consumers believing home prices will decrease rather than increase over the next year — a shift in survey sentiment that had previously only happened in 2011 and at the start of the pandemic in 2020,” said Doug Duncan, Fannie Mae chief economist, in a press release. “Moreover, 75% of consumers still think it’s a bad time to buy a home, with most citing high home prices and unfavorable economic and mortgage rate conditions as primary reasons.”

The percentage of respondents who considered September to be a good time to buy a home decreased to 19% from 22%. At the same time, the share that thought last month was a bad time to buy increased to 75% from 73%.

Meanwhile, because home prices remained high, 59% of those surveyed said it was a good time to sell, unchanged from the previous month. Those that thought it was a bad time to sell decreased to 33% from 35% in August.

When it comes to home price movements, the three options were statistically similar, although as noted, a larger percentage of people now think they will decline. The share that believes they will rise in the next 12 months decreased to 32% from 33%. The percentage that said home prices will go down increased to 35% from 33%, and those that think home prices will stay the same remained unchanged at 28%.

The few respondents that thought rates will decline in the next year fell even further, to just 9% from 11%. The sentiment for rate rises grew to 64% from 61%. And those that thought rates would be unchanged fell to 20% from 25%.

Over three-quarters of borrowers were not concerned about losing their jobs in the next 12 months, at 78%. But that was down from 79% in August. The share that is concerned remained unchanged at 21%.

This optimism about the job market was partially reflected in September’s Bureau of Labor Statistics report. The month ended with gains of 263,000 jobs and an unemployment rate of 3.5%. But this was below the average monthly job gain of approximately 420,000.

The survey period covered Sept. 1 through Sept. 21, with most of the data collected in the first two weeks.

It is likely purchase sentiment will remain suppressed over the next few months.

“As long as supply is limited and affordability pressures continue to constrain potential homebuyers via elevated home prices and mortgage rates, we expect home sales will remain sluggish,” Duncan said.