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Mortgage Rates Continue to Concern Prospective Buyers

Home valuesFannie Mae’s latest Home Purchase Sentiment Index (HPSI) was optimistic for March, as signs continue to point to an improvement in the economy a year into the pandemic. The HPSI rose in March by 5.2 points to 81.7, with four of the HPSI’s six components increasing month-over-month, including the components related to homebuying and home-selling conditions, household income, and home prices. The outlook on mortgage rates remains skeptical, as only 6% of consumers believe that rates will drop over the next 12 months.

“The significant increase in the HPSI in March reflects consumer optimism toward the housing market and larger economy as vaccinations continue to roll out, a third round of stimulus checks was distributed, and the spring homebuying season began–perhaps with even more intensity this year, since 2020’s spring homebuying season was limited by virus-related lockdowns,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Home-selling sentiment experienced positive momentum across most consumer segments–nearly reaching pre-pandemic levels and generally indicative of a strong seller’s market. Consumers once again cited high home prices and tight inventory as primary reasons why it’s a good time to sell. Alternatively, while the net ‘good time to buy’ component increased month-over-month, it has not recovered to pre-pandemic levels, as the homebuying experience continues to prove difficult for many of the same reasons, namely high prices and a lack of supply.”

The percentage of respondents who felt it was a good time to buy a home increased from 48% to 53%, while the percentage who say it is a bad time to buy decreased from 43% to 40%. As a result, the net share of those who say it is a good time to buy increased eight percentage points month-over-month.

“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” said Frank Martell, President and CEO of CoreLogic, in a recent report.

The percentage of respondents who said it was a good time to sell increased from 55% to 61%, while the percentage who say it’s a bad time to sell decreased from 35% to 28%. As a result, the net share of those who say it is a good time to sell increased 13 percentage points month-over-month.

And just why is it a good time to sell?

Redfin has reported that as the median home-sale price increased 16% year-over-year to an all-time high of $331,590, 39% of homes sold above their list price, also an all-time high and 15 percentage points higher than the same period a year earlier.

According to the HPSI, the percentage of respondents who felt home prices will rise in the next year increased from 47% to 50%, while the percentage who say home prices will go down decreased from 18% to 14%. The share who think home prices will stay the same remained unchanged at 29%.

Tight inventory and heated bidding wars are contributing to this rise in home prices as many Americans are simply being priced out of the market at this stage. Nationwide, 60.9% of home offers written by Redfin agents in February faced competition, up slightly from 59.3% in January—marking 10 consecutive months where more than half of Redfin offers encountered competition.

"The uptick in mortgage rates is likely fueling more bidding wars in the short term because house hunters are rushing to buy homes before rates rise even further,” recently said Redfin Chief Economist Daryl Fairweather. "If mortgage rates move significantly higher, we’ll likely see some buyers move to the sidelines, which will curb competition in the long run."

Click here to read more on Fannie Mae’s latest Home Purchase Sentiment Index (HPSI).

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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