Customers are (somewhat) extra optimistic concerning the housing market

Consumer sentiment regarding the housing market improved marginally in December as mortgage interest rates and home prices both declined, Fannie Mae said. But that was not enough to overcome the overall negative perception.

Its Home Purchase Sentiment Index rose to 61 for December, compared with 57.3 in November and a record low of 56.7 for October. This is the highest the HPSI was at since last August, when it was at 62.

It is down 13.2 points from December 2021, when the HPSI was 74.2.

“In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year — perhaps reflecting recently observed declines in mortgage rates and average home prices,” said Doug Duncan, Fannie Mae chief economist, in a press release. “However, the HPSI remains very low by historical standards, particularly the ‘good time to buy’ component, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism.”

Mortgage rates bottomed out at 6.27% for the week of Dec. 22, after topping 7% for the week of Nov. 10, according to the Freddie Mac Primary Mortgage Market Survey.

Just 21% of those surveyed said December was a good time to buy a home, up from 16% in November but down from 26% one year prior. At the same time 76% said it was a bad time to buy, a slight improvement over the 79% that gave that response in last month’s survey. In December 2021, 66% said it was a bad time to buy.

Meanwhile, 51% of respondents said it was a good time to sell, compared with 54% in November and 76% in December 2021. Conversely, 42% said it was a bad time to sell, up from 39% and 17% respectively.

A sign of a slightly more optimistic populous is that the share that believes rates will rise in the next 12 months decreased by 11 percentage points month-to-month, 51% in December versus 62% for November. Meanwhile, 31% said they would remain the same, up from 24% the prior month, while 14% expected them to move downward, compared with 10% in November.

When it came to home prices, 37% expected them to decline in December’s survey. That’s three percentage points higher than November’s 34%. The share that expected prices to rise remained unchanged at 30%, while 29% stated they would stay the same, down from 30% in November.

Home price growth slowed in November to single-digit annual appreciation at 8.6%, CoreLogic reported.

Employment, which has implications for both purchase activity as well as servicing, was even less of a concern for December’s survey respondents.

The vast majority of respondents, 82%, were not concerned about losing their job over the next 12 months, an increase of four percentage points from November and unchanged from one year prior. Only 17% did have a concern, down from 21% in November but also unchanged from December 2021. Nonfarm employment grew by 223,000 jobs in December, the Bureau of Labor Statistics reported on Jan. 6. That figure beat market expectations.

About 48% of respondents to the Fannie Mae survey said it would be difficult to get a loan in December, while 46% believed it would be easy. This was a narrower gap than in November when it was 51% to 46% in favor of those feeling it was more difficult.

A sign of the times is that in December 2021, 59% responded it would be easy to get mortgage and just 37% said it was difficult.

But when it comes to the economy, 71% said it was on the wrong track and 23% on the right track, unchanged from November.

“As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers, as even small declines in rates and home prices — from the perspective of the buyer — may not produce sufficient purchasing power,” Duncan said. “At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable.”

As a result, home sales are likely to continue to decline in the coming months, Duncan added, reiterating his December economic forecast.

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