The most recent month-to-month nationwide housing survey from Fannie Mae revealed an attention-grabbing contradiction.
Final month, a brand new survey-high 39% of respondents stated they count on mortgage charges to go down over the subsequent 12 months.
On the identical time, fewer count on house costs to go up over the identical interval. And extra imagine house costs will fall.
So regardless of a house buy changing into extra reasonably priced because of a decrease rate of interest, shoppers don’t assume costs will improve.
What does this say about house purchaser demand as mortgage charges go down?
However We Had been Advised Bidding Wars Would Return When Mortgage Charges Fell
Fannie’s month-to-month Dwelling Buy Sentiment Index (HPSI) did improve very barely (0.6 factors) to 72.1 in August from a month earlier.
Nevertheless it stays very low, with many of the 1,000 respondents saying it’s a poor time to purchase and in addition an more and more unhealthy time to promote.
Simply 17% stated it was a “good time” to purchase a house in August, which has remained comparatively flat for a number of months and stays simply above all-time survey lows.
In the meantime, 83% stated it was a “unhealthy time” to purchase a house, the very best share for the reason that survey’s inception.
On the identical time, solely 65% say it’s a very good time to promote, whereas 34% say it’s a foul time. Since August 2021, the “web good time” to promote has fallen from 54% to simply 31%.
So it seems nobody is proud of the present state of the housing market, which continues to be characterised by a mismatch between consumers and sellers.
Sellers are being advised they aren’t reasonable when it comes to what they’re asking, and consumers are saying it’s too costly. However no one is budging.
There’s additionally a scarcity of stock in most markets, so there’s little to select from and infrequently not what a potential purchaser is in search of.
Taken collectively, we’ve seen an enormous drop in house gross sales, particularly when you issue within the ongoing mortgage price lock-in impact.
It’s additionally odd to see this sentiment given the narrative we’ve heard for a while that the housing market would flip right into a frenzy when mortgage charges fell.
Properly, they’ve fallen from round 8% a yr in the past to simply above 6% eventually look. You’d assume that may be sufficient to get the ball rolling.
It’s the Economic system (and Perhaps Excessive Dwelling Costs Too!)
As I wrote final week, it’s not a mortgage price story. Most shoppers are on board the “charges are going decrease” bandwagon.
But they’re additionally saying it’s not a perfect time to purchase. So then you want to look elsewhere in your reply.
Are house costs simply too excessive, even with mortgage charges practically 2% beneath their peak a yr in the past?
Or is the economic system changing into extra of a priority, with the Fed dancing with a recession and many price cuts now anticipated over the subsequent yr and alter?
A lot of the shoppers surveyed by Fannie Mae stated they weren’t involved a couple of job loss (78%), which has drifted down from 82% in 2021 however stays excessive.
However respondents have been extra pessimistic about their family revenue in comparison with a yr in the past, with extra saying it’s “considerably decrease” than “considerably greater.”
This might additionally replicate the buying energy of their {dollars}, which have eroded because of the inflation of nearly every little thing.
So that you begin to marvel if shopper outlook is worsening because the economic system exhibits indicators of slowing, all whereas unemployment is rising.
That is what issues greater than charges. And actually explains why mortgage charges and residential costs don’t have an inverse relationship.
If mortgage charges are anticipated to fall as a consequence of slowing financial situations, couldn’t you argue that house worth progress may also?
I’ve argued that house costs and charges can fall in tandem because of this, regardless of nominal declines being uncommon.
Nevertheless it no less than bucks the thought of a house purchaser frenzy when charges fall. In fact, charges have fallen through the slower time of the yr. They usually’re nonetheless markedly greater than they have been as lately as early 2022.
So maybe we simply want charges to proceed falling and for the 2025 spring house shopping for season to come back about.
Then we’ll have a greater concept of the place this housing market goes subsequent.
Earlier than creating this website, I labored as an account government for a wholesale mortgage lender in Los Angeles. My hands-on expertise within the early 2000s impressed me to start writing about mortgages 18 years in the past to assist potential (and current) house consumers higher navigate the house mortgage course of. Observe me on Twitter for warm takes.