Housing Market Affect Americans’ Economic Outlook
Broader economic concerns are increasingly impacting the sentiments of Americans, extending beyond housing market worries. In the latest housing sentiment survey by Fannie Mae, a significant 85% of respondents in October expressed that it’s currently a bad time to purchase a house due to elevated home prices and mortgage rates, marking a survey high.
Their apprehensions about the economy were equally significant, with 78% of respondents believing it’s on the wrong track, reflecting a 7% increase from the previous month, primarily attributing it to rising inflation. Fannie Mae’s Chief Economist, Doug Duncan, remarked on consumers’ heightened pessimism towards both the economy and the housing market. As they continue to grapple with tight household finances, elevated home prices, and increased mortgage rates, many prospective homebuyers are likely to face prolonged affordability challenges.
According to Fannie Mae, only 17% of respondents anticipate a decrease in mortgage rates over the next 12 months, while 47% expect rates to rise, and 36% foresee them remaining stable. Higher interest rates have introduced headwinds for buyers, leading to increased frustration among them, as noted by Robert Dietz, Chief Economist at the National Association of Home Builders.
Mortgage rates have remained above 7% since mid-August, reaching levels not witnessed since 2000. Although the 30-year fixed mortgage rate recently halted its multi-week ascent towards 8%, geopolitical uncertainties and ongoing ambiguity surrounding the Federal Reserve’s actions are hindering improvements in the housing market, according to Sam Khater, Chief Economist at Freddie Mac.
Additionally, elevated rates are discouraging homeowners from selling their properties, with over a third of respondents believing it’s an unfavorable time to sell a home, creating inventory and sales constraints. The persistent scarcity of resale properties on the market has led to increased home prices, aggravating affordability issues. In August, home prices reached a new record high, and a significant portion of Americans do not foresee any relief in the near future. Over 75% of survey respondents anticipate prices either continuing to rise or remaining at current levels in the next 12 months. Only 23% believe prices will decrease in that same period.
In this scenario, traditional market dynamics where rates rising lead to price declines as a compensatory measure are disrupted by limited inventory. “It’s really depressed the market,” said Jeffrey Ruben, President of WSFS Mortgage.
This pervasive pessimism is also impacting the positive aspects of Americans’ lives. While a higher percentage of survey respondents reported feeling confident about job security, income, and their future financial situation compared to the previous month, a substantial 78% believe the economy is heading in the wrong direction, up from 71% in the prior month. This sentiment marks the highest level since June 2022 and the third-highest since the question was first posed in March 2011.
Despite a robust job market and increased wages over the past year, consumer sentiment indicates that their purchasing power has not kept pace with rising prices, especially due to inflation. As Fannie Mae’s Doug Duncan suggests, consumers across all income groups have consistently linked the ‘wrong track’ sentiment to inflation since late last year, reflecting widespread dissatisfaction with the high prices of goods and services.