Sentiment is Down, Payments are Up and Inventory Still Lags Current Needs
Written By: Joel Palmer, Op-Ed Writer
Data released this week shows that housing sentiment is at a low while the average monthly mortgage payment is at an all-time high.
Neither trend looks to subside anytime soon, with another report this past week showing the U.S. housing market is short about 6.5 million single-family homes.
The Fannie Mae Home Purchase Sentiment Index decreased in February for the first time in three months. It declined enough to be close to an all-time survey low set in October 2022, according to Fannie.
“The decline was partly driven by a substantial decrease in consumer’s sense of home-selling conditions, with most respondents who indicated it’s a “bad time to sell” citing unfavorable economic conditions and mortgage rates as the primary reasons for that belief,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
“With home-selling sentiment now lower than it was pre-pandemic – and homebuying sentiment remaining near its all-time low – consumers on both sides of the transaction appear to be feeling cautious about the housing market.”
There was a slight increase in the sentiment of potential homebuyers. The percentage of respondents who say it is a good time to buy a home increased from 17 percent to 20 percent, while the percentage who say it is a bad time to buy decreased from 82 percent to 79 percent.
On the other hand, potential sellers are less optimistic. The percentage of respondents who say it is a good time to sell a home decreased from 59 percent to 54 percent, while the percentage who say it’s a bad time to sell increased from 39 percent to 44 percent.
More than half of survey respondents (55 percent) expect mortgage rates to increase in the next 12 months. An increasing percentage — from 18 percent to 24 percent — of respondents said they are concerned about a job loss.
“We believe these results corroborate our expectation for subdued home sales in the coming quarters, particularly now that mortgage rates have begun rising again,” said Duncan. “Additionally, this month’s survey indicated an increase in job security concerns.”
Meanwhile, Redfin reported that the typical monthly house payment hit an all-time high of $2,563 this week, up 19 percent from the same time a year ago.
The rise in payments came despite home prices falling 1 percent year-over-year during the four weeks ending March 5. Rising mortgage rates accounted for the increase in monthly payments.
Redfin said high monthly payments are deterring would-be homebuyers and sellers who want to hang onto their relatively low rates. Pending home sales declined 16.1 percent year over year and were essentially flat from a week earlier, defying seasonal trends.
Redfin also reported that new listings of homes for sale dropped 21.7 percent this week, the biggest decline in two months.
“All eyes are on inflation as it continues to have a huge impact on mortgage rates and the housing market,” said Redfin Deputy Chief Economist Taylor Marr. “The Fed said this week that it may hike interest rates more than anticipated to combat persistent inflation. That news kept mortgage rates propped up, but next week’s official February inflation reading could send them meaningfully up or down. Homebuyers and sellers are ultra-sensitive to mortgage-rate fluctuations, so rates starting to decline would likely bring some buyers and sellers back—and rates rising would push more away.”
If and when buyers get back into the market, they may continue to be hampered by inadequate supply.
Realtor.com reported this week that the single-family housing market has a shortfall of 6.5 million houses.
The site’s report indicated that under-building of single-family units since 2012 prevented the market from keeping up with the increase in overall households.
During this time, builders focused on multi-family units, “as the rental market remained profitable with nationwide rent hitting a new all-time high,” the report explained.
“While that brings greater supply to the market, most of it will be used for rentals and won’t address ongoing affordability challenges in the for-sale space,” said Hannah Jones, an economic analyst at Realtor.com.
Added Danielle Hale, chief economist at Realtor.com: “As inflation and mortgage rates likely soften later this year, buyers are likely to return to the market [and will be] in search of an affordable home, and the ongoing housing-supply shortage will only continue to put pressure on the market.”
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.
