Buyers — especially younger ones — getting more discouraged about housing market

Affordability woes, persistent supply shortages and rising rates are taking a toll on consumer confidence, as Fannie Mae’s Home Purchase Sentiment Index (HPSI) has dipped to its lowest level since last May.

The HPSI decreased 2.4 points month over month in January to a reading of 71.8. Year over year, the full HPSI is down 5.9 points.

Four of the index’s six components fell from December, including the component tracking perceptions of homebuying conditions. Just 25% of respondents to Fannie Mae’s survey — a record low — indicated that it’s currently a good time to buy a home, down from 26% last month. The percentage who say it’s a bad time to buy, conversely, grew from 66% to 70%, resulting in a decrease of 5 percentage points in the net share of those who feel it’s a good buying climate.

Interestingly, despite rising prices and stiff competition, the net share of those who say it’s a good time to sell also decreased in January. The percentage of those who say it’s a good time to sell decreased from 76% to 69%, while the share of those who believe it’s a bad time increased from 17% to 22%, resulting in a net drop of 12 percentage points month over month.

Younger, entry-level buyers, in particular, are getting especially discouraged, said Doug Duncan, Fannie’s senior vice president and chief economist.

“Younger consumers — moreso than other groups — expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” said Duncan. “Additionally, while the younger respondents are typically the most optimistic about their future finances, this month their sense of optimism around their personal financial situation declined.”

That transpired among young survey respondents despite participants overall growing in optimism regarding their household income. The net share of those who report a “significantly higher” household income than 12 months ago was up 6 percentage points month over month. Survey respondents did indicate growing unease over employment, as the net share of respondents unconcerned about losing their job decreased 5%.

Unsurprisingly, survey participants are anticipating rising rates, with the net share who think mortgage rates will go down over the next 12 months down 2 percentage points from December. Respondents also expect prices to continue rising, with the net share of those who say home prices will go up increasing 4 percentage points.

“All of this,” Duncan said,” points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed. On the whole, the latest HPSI results are consistent with our forecast of slowing housing activity in the coming year.”


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