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Fannie Mae: Examining “a Divergence in Housing Affordability”

HousingMounting concerns over supply and affordability are driving down consumers' home purchase decisions, according to the latest Fannie Mae Home Purchase Sentiment Index (HPSI) [1].

The index dropped 0.5 points in June after reaching its survey high of 91.5 in May, the data indicated. This, despite an eight-percentage-point spike in consumer expectation of lower mortgage rates.

“Growing expectations that mortgage rates will remain steady suggest improved stability for housing affordability and helped keep the HPSI relatively flat this month, despite modest declines in other components,” said Doug Duncan, SVP and Chief Economist at Fannie Mae.

The HPSI for June indicated a four-percentage-point drop to 23% in consumer sentiment on "Good Time to Buy." Despite these dips, the overall HPSI remained slightly above (0.8 points) last year's June data.

The net share of those who said that now was a good time to sell remained unchanged at 43%, though this was four-percentage-points down compared to last year.

Consumer sentiment relating to home prices was also down eight-percentage-points compared to last year and decreased three-percentage-points month-over-month to 38%.

According to Duncan, the June home purchase sentiment was also driven by regional housing trends. “Regional variations in housing optimism appear to be tied to a divergence in housing affordability; for example, home purchase sentiment is higher in the Midwest and South than in the West and, to a lesser extent, the Northeast, where the lack of entry-level inventory and the resultant strong price appreciation has had a more profound impact on affordability,” he noted. “With fewer consumers expecting rates to jump back up–thereby creating less urgency to buy now–we expect housing market activity to remain stable.”

Looking at wider economic indicators that typically impact housing, the HPSI data indicated that the share of Americans who said they were not concerned about losing their job decreased three-percentage-points to 73%. This component is down three-percentage-points from last year. Similarly, the share of those who said that their household income was significantly higher compared to last year dipped a percentage point to 20%, month-over-month.