Fannie Mae sentiment index inches upward, but homebuyer perception falls to new low

Gains in three components of index offset by ongoing affordability issues

Fannie Mae’s Home Purchase Sentiment Index (HPSI) saw a slight increase in July, but consumer perception of homebuying conditions eroded. What gives?

The newest shift in the widely followed market confidence metric comes by the way that its overall reading is derived. The HPSI is calculated via answers from Fannie Mae’s monthly National Housing Survey, which asks six questions. The answers to each of these questions determines a separate component index of the HPSI.

Three of the HPSI’s six component indices, most notably the component that measures consumer confidence in job security, grew month over month. These gains were enough to nudge the overall HPSI’s reading modestly upward, bringing it to a year-over-year increase of 4 points.

The gain was offset by negative movement in one component: consumer perception on whether it’s a good time to buy a home. The percentage of survey respondents who say it’s a good time to buy a home fell from 22% to 18%, while the share who believe it’s a bad time to buy grew from 78% to 82%. That dropped the net share of those who say it’s a good time to buy by 8 percentage points month over month.

Moreover, the 82% share who see it as a bad time to buy a home is the largest such figure ever recorded by Fannie’s survey. The 78% share recorded in June was the previous peak. Another of the component indexes, the net share of those who say it’s a good time to sell, was unchanged.

“While consumers are reporting confidence in the components related to their personal financial situations, it’s unlikely we’ll see housing sentiment catch up to other broader economic confidence measures until there is meaningful improvement to home purchase affordability,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

“In July, a significant majority of consumers indicated that their jobs are stable and that their incomes are the same or better than they were 12 months ago. However, homebuying sentiment once again matched its all-time low, with only 18% telling us that it’s a good time to buy a home. Unsurprisingly, consumers continue to attribute the challenging conditions to high home prices and unfavorable mortgage rates. Further, the share of consumers expecting home prices to continue to rise has also been on a steady climb since March, which may only add to perceptions of unaffordability.”


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