Mortgage Rates, Rocky Economy Driving Down Homebuyer Demand

A major monthly index published by Fannie Mae increased in March 2023, but the 3.3 point increase is still low in the grand scheme of things as the current rate of 61.3 is only slightly higher than the index’s all-time low set late last year. 

Of the Home Purchase Sentiment Index’s (HPSI) six major components, four increased month-to-month, notably those associated with home-selling conditions and job security. In March, 40% of consumers who responded to the survey believe that it’s a bad time to sell a home, down 4% from February. Job security numbers also went up as 21% were concerned about their job versus 24% in February. 

“Despite the recent banking turbulence, the HPSI increased modestly in March, although it still remains near its historical low,” said Mark Palim, Fannie Mae VP and Deputy Chief Economist. “With the spring homebuying season now upon us, a large majority of consumers continue to believe that it’s a bad time to buy a home. Homeowners sharing this belief frequently cited ‘unfavorable mortgage rates’ as the primary reason for their pessimism, further corroborating the often-discussed disincentive – or ‘lock-in effect’ – that many mortgage holders who may be considering moving have toward giving up their lower rates. By contrast, surveyed renters once again indicated that high home prices are their primary concern for buying a home.”  

Palim continued: “Unsurprisingly, consumers also expressed apprehension about the direction of home prices. In March, there was an even split among respondents who said home prices over the next 12 months will go up compared to those who expect them to go down. With affordability constraints, the lock-in effect, and home price direction uncertainty weighing heavily on consumers’ minds, we maintain our forecast that total home sales for the year will remain subdued.” 

Component highlights of the HPSI as highlighted by Fannie Mae includes: 

• Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased in March by 3.3 points to 61.3. The HPSI is down 11.9 points compared to the same time last year.
• Good/Bad Time to Buy: The percentage of respondents who say it is a good time to buy a home remained unchanged at 20%, while the percentage who say it is a bad time to buy remained unchanged at 79%. As a result, the net share of those who say it is a good time to buy decreased one percentage point month over month (due to rounding). 
• Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home increased from 54% to 58%, while the percentage who say it’s a bad time to sell decreased from 44% to 40%. As a result, the net share of those who say it is a good time to sell increased eight 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 30% to 32%, while the percentage who say home prices will go down decreased from 35% to 31%. The share who think home prices will stay the same increased from 33% to 35%. As a result, the net share of those who say home prices will go up increased four percentage points month over month. 
• Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 15% to 12%, while the percentage who expect mortgage rates to go up decreased from 55% to 51%. The share who think mortgage rates will stay the same increased from 28% to 34%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased one percentage point month over month. 
• Job Loss Concern: The percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 73% to 78%, while the percentage who say they are concerned decreased from 24% to 21%. As a result, the net share of those who say they are not concerned about losing their job increased seven percentage points month over month. 
• Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 22% to 20%, while the percentage who say their household income is significantly lower decreased from 12% to 11%. The percentage who say their household income is about the same increased from 63% to 68%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago decreased two percentage points month over month.