Bay Area Real Estate Report 8-11-2023

Properties For Sale

Stuck in Renting Purgatory: Over 80% Believe It’s a Bad Time to Buy a Home

The Fannie Mae Home Purchase Sentiment Index (HPSI) for July is, as one might expect, a mixed bag. Consumer sentiment on job loss concerns improved. Optimism regarding household income held steady. And the net share of respondents who expect mortgage rates to go down in the next 12 months increased from June by three percentage points.

On the flipside, 82% of consumers now believe it’s a bad time to buy a home—up from 78% in June—meaning fewer than one in five Americans see the market as favorable to homebuyers.

Also, the number of respondents expecting home prices to increase over the next 12 months climbed six percentage points month over month. Good news for homeowners; for homebuyers, not so much.

The full HPSI rose 4.0 percentage points year over year.

While consumers are reporting confidence in the components related to their personal financial situations, it’s unlikely we’ll see housing sentiment catch up to other broader economic confidence measures until there is meaningful improvement to home purchase affordability. In July, a significant majority of consumers indicated that their jobs are stable and that their incomes are the same or better than they were twelve months ago. However, homebuying sentiment once again matched its all-time low, with only 18% telling us that it’s a good time to buy a home. Unsurprisingly, consumers continue to attribute the challenging conditions to high home prices and unfavorable mortgage rates. Further, the share of consumers expecting home prices to continue to rise has also been on a steady climb since March, which may only add to perceptions of unaffordability. Additionally, we have not seen much movement in the ‘good time to sell’ component over the last few months, an indication that the current low levels of existing homes for sale will likely continue to persist in the near term, as also reflected in our latest forecast. - Doug Duncan - Fannie Mae Senior Vice President and Chief Economist

THREE COMPONENTS OF THE HPSI IMPROVED

The small uptick in the HPSI this month came from net increases in three components—Home Price Outlook, Job Loss Concern, and Mortgage Rate Outlook—offset by a net decrease in one component: Buying Conditions.

Results for Household Income and Selling Conditions are unchanged from the previous month.

“A TALE OF TWO MARKETS”

In an article for Fortune, Fannie Mae CEO Priscilla Almodovar describes the situation as a “tale of two markets.” On one hand, we have a housing market that favors homeowners as rising home prices drive up homeowner equity.

But those same rising home prices, combined with mortgage rates that have more than doubled over the past 18 months, are putting the squeeze on Americans shopping for homes.

Younger buyers and the historically underserved are feeling it the most as many remain stuck in renting purgatory. Boomers, meanwhile, with the wealth they’ve accumulated over the years, are more likely to be able to pay in cash, giving them an edge over buyers in need of financing.

Hence the reason more buyers now believe it’s a “bad time to buy,” taking that component of the index near its historic lows and showing a marked decline in optimism from 2019.

Read the full Fannie Mae HPSI data report for more details.

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Posted by:

Sarah Lentz

August 10, 2023

Housing Market

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