High interest rates surpass home prices as No. 1 affordability hurdle

Fannie Mae consumer sentiment survey uncovers rising pessimism as difficult housing conditions persist

The high financial barrier to homeownership remains an omnipresent challenge for buyers, but according to Fannie Mae’s most recent Home Purchase Sentiment Index (HPSI), mortgage rates have replaced home prices as consumers’ largest impediment to homeownership.

The agency’s HPSI fell by 2.4 points in September to hit a reading of 64.5, with five of six component indices declining on a monthly basis. Most notably, the component that measures perceived homebuying conditions decreased, with only 16% of survey respondents saying that it’s a good time to buy a home. That’s down from 18% in August to match the all-time low set last year. Meanwhile, the share of consumers who say it’s a bad time to buy grew from 82% to 84%, a new survey high. In turn, that brought the net share of those who say it’s a good time to buy down by 4 percentage points compared to August.

Additionally, for the first time in the history of the survey, high mortgage rates surpassed high home prices as the No. 1 reason why respondents think it’s a bad time to buy a house.

“Mortgage rates persistently over 7% appear to be deepening the malaise consumers feel about the home purchase market,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

Unfortunately, buyers don’t see much semblance of relief on the horizon, as they also continue to project further home price increases in the next year. The net share of respondents who say home prices will go up in the next 12 months grew by 4 percentage points from August to September. Consumers are also pessimistic about mortgage rates, with the net share of those who say mortgage rates will go down in the next 12 months falling by 1 percentage point month over month.

Optimism among home sellers is also on the wane, with 63% of respondents saying it’s a good time to sell, down from 66% in August. Meanwhile, the share who believe it’s a bad time to sell grew from 34% to 37%, bringing the net share of those who say it’s a good time to sell down by 7 percentage points month over month.

“On the sell side, respondents also listed unfavorable mortgage rates as the top reason why they believe it’s a bad time to sell a home,” Duncan said. “This indicates to us that many homeowners are probably not eager to give up their ‘locked-in’ lower mortgage rates anytime soon, but it also may reflect the worry of some homeowners that sale values might be suppressed slightly if the pool of qualified homebuyers is constrained by elevated mortgage rates.

“They also indicated that their personal economic situations are showing signs of strain, including lower year-over-year household incomes and a reduced sense of job security,” Duncan added. “In our view, all of this points to home purchase affordability remaining a problem for the foreseeable future, which we forecast will keep home sales sluggish into next year.”


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