Home purchase sentiment claws upward but remains mired near record low

December saw a small uptick in home purchase sentiment, but overall consumer perceptions are still hovering near their lowest level ever recorded, according to the newest iteration of Fannie Mae’s Home Purchase Sentiment Index (HPSI).

The HPSI inched upward by 3.7 points to close 2022, bringing it to a reading of 61.0. The December increase marks continued gains in the HPSI from the month prior, when the index finally reversed an eight-month slide that culminated in an October reading of 56.7, a record low since the HPSI was established in 2011.

The overall HPSI is derived from a survey asking about six economic and housing-related factors: home price expectations, mortgage rate expectations, job security concerns, household income growth, and perceptions of whether it’s a good time to buy and whether it’s a good time to sell. December’s HPSI saw gains due to month-over-month improvement in these components, led by a net increase of 15 percentage points in the respondents who believe mortgage rates will trend downward over the next year.

“In December, the HPSI inched upward slightly as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices,” said Doug Duncan, senior vice president and chief economist for Fannie Mae. “However, the HPSI remains very low by historical standards, particularly the ‘good time to buy’ component, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism.”

Considering that net perception about homebuying conditions remains so low despite a 15-point bump in December, Duncan expects that affordability woes will continue to be the biggest near-term hurdle that holds back further improvement in the HPSI.

“As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers, as even small declines in rates and home prices – from the perspective of the buyer – may not produce sufficient purchasing power,” he said. “At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable.”

The “resulting tension,” Duncan added, is projected to contribute to further home sales decreases in the months ahead.


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