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Consumers Feel the Economy Is on the Wrong Track

Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) [1] 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 [2], Fannie Mae VP and Deputy Chief Economist.

Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) [3] 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 [4], 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 [5], 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:

"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."