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Only 14 percent of Americans surveyed last month said November was a good time to buy a home — a new record low in monthly surveys mortgage giant Fannie Mae has been conducting since 2010. But the results of Fannie Mae’s latest National Housing Survey, released Thursday, may already be out of date.

The survey of 1,058 homeowners and renters was conducted between Nov. 1 and Nov. 16, and most respondents were contacted in the first two weeks of November, when mortgage rates were just beginning a dramatic retreat from 2023 highs.

When the survey was taken, close to half of consumers were expecting that mortgage rates would continue climbing into the stratosphere, and only one in five consumers thought they would come down in the next 12 months.

But come down they have: Rates for 30-year fixed-rate mortgages averaged 6.96 percent Wednesday, down nearly a full percentage point from a 2023 high of 7.83 registered on Oct. 25, according to daily rate lock data tracked by Optimal Blue.

While it will be another month before the full impact of declining mortgage rates on consumer sentiment is known, Fannie Mae Chief Economist Doug Duncan cautioned that there’s more to consumer pessimism than elevated mortgage rates.

Persistent affordability challenges and worries about household finances are the primary drivers of housing sentiment plateauing at a low level, Duncan said.

Doug Duncan

“Even if mortgage rates decline over the next year, which we currently expect, it’s unlikely to meaningfully affect affordability,” Duncan said, in a statement. “The lack of housing inventory is likely to remain a challenge for some time, and home purchase sentiment may continue to be suppressed as a result. As our forecast indicates, we believe it will be a couple years before home sales return to more normal, pre-pandemic levels.”

In a Nov. 21 forecast, Fannie Mae economists said they expect sales of existing homes to drop to a seasonally adjusted annual rate of 3.9 million homes during the final three months of this year, which would be the lowest pace of sales since 2010.

While Fannie Mae forecasters don’t see home sales bottoming until Q1 2024, economists at the Mortgage Bankers Association are more optimistic, projecting that home sales bottomed in Q3 2023 and are poised for eight consecutive quarters of growth.

One driver of the diverging forecasts is that Fannie Mae economists had predicted mortgage rates wouldn’t drop below 7 percent until Q2 2025 — something that’s already happened. Forecasters at the Mortgage Bankers Association see mortgage rates coming back down into the mid-6 percent range by the end of next year and continuing to fall into the mid-5s by the end of 2025.

Source: Fannie Mae National Housing Survey, November 2023.

Nearly half of consumers surveyed by Fannie Mae in the first half of November (44 percent) thought mortgage rates would continue to climb over the next 12 months, down from 47 percent in October.

The percentage of consumers who expected rates to come down in the year ahead jumped 8 percentage points from October to November, to 22 percent, the highest level in three years.

But even after that significant change in sentiment, only one in five consumers had an inkling that a big drop in rates was already underway.

Mortgage rates have eased in the wake of a string of reports suggesting that the economy is slowing, and rising expectations among bond market investors who fund most mortgages that the Federal Reserve is not only done hiking rates, but will reverse course in the spring.

But as Duncan was careful to point out, housing sentiment is about more than just mortgage rates.

Fannie Mae pulls six of the most important questions from the National Housing Survey and distills them into a single number, the Fannie Mae Home Purchase Sentiment Index (HPSI).

Source: Fannie Mae National Housing Survey, November 2023.

With four of the index’s six components decreasing from October to November (buying conditions, selling conditions, job loss concern, and change in household Income), the HPSI fell 0.6 points to 64.3, bringing the index within 7.6 points of its all-time low of 56.7, registered in October 2022.

With consumer sentiment in regard to home prices unchanged from November, the only component of the HPSI that improved in November was the outlook for mortgage rates.

Source: Fannie Mae National Housing Survey, November 2023.

Only 14 percent of consumers said November was a good time to buy, down from 15 percent in October. And with the percentage who said it was a bad time to buy remaining unchanged at 85 percent, the net share of consumers who said it was a good time to buy decreased by one percentage point month over month.

At negative 71 percent, the net share of consumers who said it was a good time to buy hit a new survey low for the third month in a row.

Source: Fannie Mae National Housing Survey, November 2023.

Markets that are challenging for buyers are often favorable to sellers, but the percentage of consumers who said November was a good time to sell a home fell three percentage points from October to 60 percent.

While most consumers still saw conditions for sellers as good, the percentage who said November was a bad time to sell increased to 40 percent, up from 37 percent in October. As a result, the net share of those who said it was a good time to sell decreased five percentage points from October to 21 percent.

Source: Fannie Mae National Housing Survey, November 2023.

Most Americans who have jobs aren’t concerned about losing them in the next 12 months, but the share who say they are concerned about being unemployed trended up in November.

Close to one in four of those surveyed by Fannie Mae in November (23 percent) said they were concerned about losing their job in the year ahead, up from 21 percent in October. With the share of consumers who were not concerned about losing their jobs falling two percentage points, to 76 percent, the net share of those who said they were not concerned about losing their job decreased by four percentage points, to 53 percent.

Source: Fannie Mae National Housing Survey, November 2023.

While Fed policymakers have been concerned that rising wages are a driver of inflation, only 19 percent of households surveyed in November said their income is significantly higher than a year ago, down from 20 percent in October.

Household income was significantly lower than a year ago among 12 percent of households surveyed in November, up from 10 percent in October.

With 68 percent saying their household income was about the same as a year ago, the net share of those who reported their household income was significantly higher decreased three percentage points from October at 7 percent.

Source: Fannie Mae National Housing Survey, November 2023.

Many would-be homebuyers would undoubtedly welcome price declines, but the HPSI treats an increase in consumer confidence that prices will appreciate as a plus for housing sentiment.

While home price appreciation has cooled considerably in the last year, 41 percent of consumers surveyed by Fannie Mae in November thought home prices will go up over the next year, up from 40 percent in October.

However, the share of consumers who expected home prices will go down also increased to 24 percent, up from 23 percent in October. As a result, the net share of those who say home prices will go up in the next 12 months remained unchanged from October.

Has impact of the lock-in effect been overstated?

Elevated mortgage rates have not only created affordability challenges for buyers but made many would-be sellers more reluctant to put their homes on the market because they don’t want to give up the low rate on their existing mortgage.

The so-called mortgage rate lock-in effect is thought to be one factor that’s made listings scarce in many markets.

The recent decline in mortgage rates could help get some would-be sellers off the fence. But even if rates don’t continue to slide, the impact of the lock-in effect may have been overstated.

In the first quarter of 2023, Fannie Mae researchers used the National Housing Survey to ask homeowners if they planned to stay longer in their current homes than originally intended and, if so, why.

They found that only 29 percent of homeowners with a mortgage planned to stay in their homes longer than they’d originally intended. Among that group, only one in five (21 percent) said having a low mortgage rate was the primary reason for their change in plans.

That means the lock-in effect is the biggest factor delaying a move for only about 6 percent of all homeowners with mortgages, Fannie Mae researchers concluded in October.

A new report released by Bank of America researchers this week supports that conclusion, finding half of current homeowners would sell if their dream home became available, and that 54 percent would sell if they found a more affordable area to live, even if it meant paying a higher interest rate for a new mortgage.

Other reasons homeowners said might convince them to give up their current mortgage rate included:

  • Job opportunity or job relocation: 40 percent
  • Nicer neighborhood amenities: 40 percent
  • The need for a larger home or more rooms: 38 percent

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Email Matt Carter

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