Housing and Economic Update from Matthew Gardner

Hello there!  I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to the latest episode of Mondays with Matthew.

Today we are going to take a look at the latest Home Purchase Sentiment Index survey that was just put out by Fannie Mae. And for those of you who may not be familiar with this survey, it’s actually pretty important and one that I track closely as it’s the only national, monthly, survey of consumers that’s focused primarily on housing.

The survey shows the responses of 1,000 consumers across the country to roughly 100 survey questions on a wide range of housing-related topics. Now, don’t worry, we aren’t going to look at all 100 questions – just the ones that solicit consumers’ evaluations of housing market conditions and that also address topics related to their home purchase decisions.

So, as you can see here, the overall index was trending higher pretty consistently until the pandemic happened which had massive, but temporary, impacts. And looking at the last 3-years, you can get a better idea as to the speed of the pandemic-induced drop – pretty remarkable.

Now, you will also see that the index recovered quite quickly; however, it fell again last fall as the pandemic was not going away at the speed many had hoped for – it rose again this spring but has been pulling back for the past few months but, that said, the August index level essentially matched the level seen in July.

Now let’s look at the questions that are used to create of the index number and how consumers responded.

When asked whether it was a good time to buy a home, the percentage who agreed with that statement rose from 28 to 32%, while the share who thought that it is a bad time to buy dropped from 66 to 63%. And, as a result, the net share of those who say it is a good time to buy jumped 7 points month over month, and it’s notable that this is the first time the net share number has improved in the past 4-months.

What I see here is that – although improving modestly, the general consensus is that it is not a good time to buy and that sentiment is being driven by two things: One – there are still not enough homes on the market, and two, rapidly rising prices are scaring some people.

And when asked if they thought it was a good time to sell their homes it was interesting to see that share drop from 75 to 73% while the percentage who said that it’s a bad time to sell dropped 1 point to 19% and as a result, the net share of those who said it was a good time to sell pulled back by 1% but it still indicates that more owners think that it is a good time to sell than don’t.

Looking now at the direction of home prices over the next 12-months, the percentage who think that home prices will rise fell from 46 to 40%, while the percentage who expected home prices to drop rose from 21 to 24%.

As a result, the net share of Americans who say home prices will go up dropped by 9 points – from 25%, down to 16%.

Although this may sound concerning, I should add that the share of respondents who thought that home prices will remain static over the next year rose from 27% to 31%.

On the financing side, the share who think mortgage rates will rise over the next 12 months dropped from 57 to 53%, while the percentage who believed rates would be lower rose from 5% to 6% and, as a result, the net share of Americans who believed that mortgage rates will go down over the next 12 months rose by 5%, and with 35% of respondents thinking that rates will hold steady – it’s clear to me that a vast majority are not worried about mortgage rates rising.

The takeaways for me so far are that consumers tempered both their recent pessimism about homebuying conditions and their upward expectations of home price growth.

Most notably, a greater share of consumers believe that it’s a good time to buy a home – though that population remains firmly in the minority at only 32% – while the ongoing plurality of respondents who expect home prices to go up over the next 12 months dropped but was still well above the 24% of consumers who believe home prices will fall.

Now, there are two more questions that are worth looking at which aren’t directly related to home buyers and sellers but are still important as they look at employment and incomes.

The percentage of respondents who said that they are not concerned about losing their job in the next 12 months remains very high at 82%, but it did drop by 2 points month-over-month, while the percentage who said that they are concerned ticked up to 15% from 13%. As a result, the net share of Americans who say they are not concerned about losing their job fell by 4 percentage points month over month, but remains well above the level seen a year ago.

And finally, when households were asked about their own personal finances, the percentage of respondents who said that their household income is significantly higher now than it was 12 months ago pulled back one point to 26%, while the percentage who said that their household income is significantly lower dropped to 12%.

As a result, the net share of those who said that their household income is significantly higher than it was a year ago rose by 1 percent month over month and came in 5 points higher than a year ago. It’s also worthwhile noting that most said that their household income is about the same as it was a year ago with that share rising from 56 all the way up to 59%.

Looking at all the numbers in aggregate, the index level was relatively flat in August with three of the index’s six components rising month over month, while the other three fell, and that tells me that the continued strength of demand for housing and definitely favorable conditions for home sellers may well be offsetting broader concerns about the Delta variant of COVID-19 as well as rising inflation that have both negatively impacted other consumer confidence indices.

Most consumers continued to report that it’s a good time to sell a home – but a bad time to buy – and they most frequently cite high home prices and a lack of supply as their primary rationale.

However, the ‘good time to buy’ component, while still near a survey low, did tick up for the first time since March, perhaps owing in part to the very favorable mortgage rate environment as well as growing expectations that home price appreciation will begin to moderate over the next year. A sentiment that I personally agree with.

Well, I hope that you have found this month’s discussion to be interesting. As always if you have any questions or comments about this topic, please do reach out to me but, in the meantime, stay safe out there and I look forward the visiting with you all again, next month.

Bye now!