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Fannie Mae Market Report: Consumer Sentiment and Housing

Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased one point to 75.5 in October, with consumer expressing mixed feelings on the current homebuying and home selling markets. In addition, a good majority of those polled felt pessimistic toward the overall financial landscape of the U.S. economy.

"The HPSI remained relatively flat this month, staying within the general bounds it began to set in June 2020–following the initial shock of the pandemic to the index," said Doug Duncan, Fannie Mae SVP and Chief Economist. "While homebuying and home-selling sentiment remain at historically low and high levels, respectively, more consumers now expect that their personal financial situation will not improve over the next 12 months. This is particularly true among surveyed homeowners and older age groups."

Overall, four of the six components of the HPSI increased month-over-month, with slightly greater shares of consumers reporting that it was a good time to buy a home and sell a home–with those numbers now sitting at 30% and 77%, respectively, up from 28% and 74% last month.

Consumers also reported even stronger expectations that mortgage rates will increase over the next 12 months, the Federal Reserve recently announced that it will begin a gradual taper, easing away from emergency stimulus after jumping into action to maintain economic stability at the outset of the pandemic in March 2020.

Part of the Fed’s rollback will include scaling back the purchase of billions in government bonds and other assets monthly, reducing its current pace of $120 billion purchased presently, and dropping that total to $105 billion in November, and to $90 billion by December. The Fed’s tapering will place upward pressure on mortgage rates, as noted by Odeta Kushi, First American Deputy Chief Economist, who notes that forecasts from economists predict that rates will hit 3.2% by the end of the year, and inch toward the 4% mark by the close of 2022.

"In October, consumers also reported greater concern about the direction of the economy, with 'right track' sentiment reaching its lowest level since October 2013,” said Duncan. “We believe the uptick in negative economic sentiment is likely a function of ongoing supply chain disruptions and inflation concerns. However, while economic uncertainty could potentially dampen mortgage demand over the longer term, we believe current market conditions remain conducive to home purchase activity, as demand for homes continues to far outstrip the supply available for sale."

HPSI highlights for October include:

  • Good/Bad Time to Buy: The percentage of respondents who say it is a good time to buy a home increased from 28% to 30%, while the percentage who say it is a bad time to buy decreased from 66% to 65%. As a result, the net share of those who say it is a good time to buy increased three percentage points month-over-month.
  • Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home increased from 74% to 77%, while the percentage who say it's a bad time to sell decreased from 19% to 17%. As a result, the net share of those who say it is a good time to sell increased five percentage points month-over-month.
  • Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months increased from 37% to 39%, while the percentage who say home prices will go down decreased from 24% to 22%. The share who feels home prices will remain unchanged decreased from 33% to 32%.
  • Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 8% to 5%, while the percentage who expect mortgage rates to go up increased from 51% to 55%. The outlook on this may drastically change amid news of the Fed’s tapering as announced last week.
  • Job Concerns: The percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 81% to 84%, while the percentage who say they are concerned decreased from 16% to 15%. Further confidence in a strong job market was found last week by the Bureau of Labor Statistics (BLS), who reported that the American economy added 531,000 jobs in October, and the unemployment rate was 4.6%, down from 4.8% in September. U.S. Secretary of Labor Marty Walsh noted that 5.6 million jobs were added since the President took office, with an average of 620,000 jobs added per month.
  • Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 27% to 23%, while the percentage who say their household income is significantly lower decreased from 13% to 12%. The percentage who says their household income is about the same increased from 57% to 62%. Unemployment continues to tail off week-to-week as the U.S. Department of Labor reported that for the week ending October 30, the advance figure for seasonally adjusted initial unemployment claims was 269,000, a decrease of 14,000 from the previous week's revised level, the lowest level for initial claims since March 14, 2020 when it was 256,000.

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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