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Consumers Feel the Economy Is on the Wrong Track

Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) fell by a slight 0.8 points to 74.7 in November, as consumers expressed not only contrasting perspectives on homebuying and home-selling conditions, but also their greatest economic pessimism in nearly a decade.

Overall, four of the HPSI's six components decreased month-over-month. In November, 74% of respondents reported that it's a good time to sell their home, compared to the 29% of consumers who reported that it's a good time to buy. Consumers also continued to report strong expectations that mortgage rates will increase over the next 12 months, and they expressed even greater pessimism about the direction of the economy, with nearly 70% saying it's on the wrong track. Year over year, the full index is down 5.3 points.

"The HPSI experienced some shuffling among its underlying components in November, but the overall Index once again stayed relatively flat," said Mark Palim, Fannie Mae VP and Deputy Chief Economist.

Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) found the 30-year fixed-rate mortgage (FRM) still lingering around the 3% range, averaging 3.11% for the week ending December 2, 2021.

“Mortgage rates continue to remain stable notwithstanding volatility in the financial markets,” said Sam Khater, Freddie Mac Chief Economist.

Despite the pessimism by consumers, positive signs were found in the latest unemployment report from the U.S. Department of Labor, as for the week ending November 27, the advance figure for seasonally adjusted initial unemployment claims was 222,000, the lowest level for this average since March 14, 2020 when it was 225,500.

"While consumers expressed even greater concern regarding the direction of the economy, with the share of respondents expressing pessimism hitting a 10-year high, overall housing sentiment remained stable,” said Palim. “Consumers' concerns for their personal job situation have eased and respondents also reported feeling better about their income level compared to a year ago, with both of those components now nearing their pre-COVID levels."

Highlights of the HPSI include:

  • Good/Bad Time to Buy: The percentage of respondents who reported it was a good time to buy a home decreased slightly from 30% to 29%, while the percentage who say it is a bad time to buy decreased from 65% to 64%.
  • Good/Bad Time to Sell: The percentage of respondents who felt it was a good time to sell a home decreased from 77% to 74%, while the percentage who say it's a bad time to sell increased from 17% to 21%.
  • Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months increased from 39% to 45%, while the percentage who say home prices will go down decreased from 22% to 21%.
  • Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months remained unchanged at 5%, while the percentage who expect mortgage rates to go up increased from 55% to 58%. The share who feels mortgage rates will stay the same decreased from 33% to 32%.
  • Job Concerns: The percentage of respondents who say they are not concerned about losing their job in the next 12 months decreased from 84% to 83%, while the percentage who say they are concerned remained unchanged at 15%. This sentiment echoed from the latest Department of Labor findings where unemployment claims came in at 222,000 for the week, the lowest level for this average since March 14, 2020.
  • Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago remained unchanged at 23%, while the percentage who say their household income is significantly lower increased from 12% to 13%. The percentage who notes their household income is about the same decreased from 62% to 61%. Recent findings from the Mortgage Bankers Association's (MBA) Research Institute for Housing America (RIHA) have found that, in the span of just three years, the median net worth of U.S. households rose nearly $25,000, primarily on the strength of homeowner equity. This represented a 17.6% gain in net worth from 2016-2019, rising from an average of $103,000 to $127,000—the highest total since 2007.

"Even though consumers are reporting broader macroeconomic concerns–with much of it likely tied to inflation–so far any negative sentiment tied to the economy has not translated into a meaningful decrease in actual purchase mortgage demand,” said Palim. “According to this month's survey, an even greater share of consumers (particularly those with low and moderate incomes) expects mortgage rates to go up in the next 12 months, which may be a signal that some households plan to pull-forward their home purchase plans despite growing economic apprehension."

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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