Home prices have started to drop, but the decline has not been significant enough to brighten pessimism about the housing market.
Fannie Mae’s Home Purchase Sentiment Index (HPSI), which tracks the housing market and consumer confidence to sell or buy a home, dropped by 0.8 points in August to 62, marking its sixth consecutive decline. The government-sponsored enterprise attributed high home prices and mortgage rates to the decline, particularly weighing on home-selling sentiment. Year over year, the index is down 13.7 points.
On the seller side, 35% said it was a bad time to sell, rising from 27% in July. About 59% said it’s a good time to sell, dropping from the previous month’s 67%.
“The share of consumers expecting home prices to go down over the next year increased substantially in August. Accompanying this, HPSI respondents reported a significant decrease in home-selling sentiment,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist.
Following a slow down in home price appreciation, prices slipped 0.77% in July from June, marking the largest single-month decline in the housing market since January 2011, according to Black Knight. About 85% of major housing markets, mainly in the West Coast, saw prices pull back from their peak levels, and more price corrections are expected across the U.S.
“We also observed a large decline in consumers reporting high home prices as the primary reason for it being a good time to sell a home, suggesting that expectations of slowing or declining home prices have begun to negatively affect selling sentiment,” Duncan said.
On the other hand, lower home prices would be welcome news for potential first-time homebuyers, who are disproportionately affected by high home prices and high mortgage rates.
Overall, 22% of respondents said it was a good time to buy a home in August, up from 17% a month prior, but 73% said it was a bad time to buy, down from 76% in July.
Consumers were not optimistic about mortgage rates. About 11% of respondents said that mortgage rates will go down in the next 12 months while 61% stated that mortgage rates will go up.
Mortgage rates have been on a rising trend in recent weeks ahead of another potential rate hike by the Federal Reserve later this month. Purchase mortgage rates rose to an average of 5.89% this week.
“With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year,” Duncan said.
Goldman Sachs, in a paper titled “The Housing Downturn: Further to Fall,” forecasted that new and existing home sales are going to fall 22% and 17% respectively this year. Next year, the investment predicted new and existing home sales will drop another 8% and 14%.
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