Optimism Moderating Among Lenders and Homeowners
Written By: Joel Palmer, Op-Ed Writer
Optimism among mortgage lenders and homeowners is waning, according to a pair of surveys released last week by Fannie Mae.
Fannie Mae's Home Purchase Sentiment Index (HPSI) fell in November by 1.7 points to 80 and is down 11.5 points compared to the same time last year. The HPSI had increased the previous three months.
"The HPSI appears to have peaked for now as consumers continue to consider how COVID-19 impacts their ability to buy or sell a home," said Doug Duncan, Fannie’s senior vice president and chief economist. "This follows the HPSI's recovery of slightly more than half of the loss experienced during the first few months of the pandemic.”
About 57 percent of respondents said now is a good time to buy a home, down from 60 percent the month before. The percentage who say it is a bad time to buy remained the same at 35 percent.
A similar percentage, 59 percent, say it’s a good time to sell a home, the same as the previous month. The percentage who say it’s a bad time to sell decreased from 35 percent to 33 percent.
The survey also showed that 41 percent of respondents expect higher home prices in the next 12 months, while 43 percent anticipate higher mortgage rates.
Mortgage lenders expect a decline in profits over the next three months, according to Fannie’s Q4 Mortgage Lender Sentiment Survey.
According to the survey, nearly half of respondents expect profits will decrease in the next quarter compared to the prior quarter, while only 19 percent anticipate an increase in profits.
The survey revealed that mortgage spreads have narrowed since peaking in April. The average spread was 190 basis points in November, which remains above the long-run average of 170 points.
More lenders are reporting higher demand for purchase mortgages over the past three months and lower demand for refinance loans.
Lenders continued to report that credit standards tightened for the prior three months, though significantly less so compared to last quarter. Most lenders expect credit standards to stay about the same for the next three months.
Fannie expects loan origination volume of $4.1 trillion for 2020, which would be the highest since 2003.
"However, moving into 2021, lender sentiment paints a more cautious picture, aligning neatly with our recently reported consumer-side sentiment expectations, which appear to have plateaued, and supporting our forecast for a more modest pace of housing growth," Duncan said.
“The resurgence of COVID-19 cases and uncertainty around the economic recovery path pose risks to the pace of housing growth. Pending sales and purchase mortgage applications have recently pulled back from highs as pent-up demand from the spring has receded. Tight inventories, along with higher home prices, will likely continue to restrain sales, and the recent compression of the primary/secondary mortgage spread appears to confirm mortgage lenders’ lower profitability expectations."
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
