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Upticks in Labor Market Breeding Consumer Optimism

The latest Fannie Mae Home Purchase Sentiment Index (HPSI), a measure of consumers’ views and forward-looking expectations of housing market conditions, declined in February by 1.2 points to 76.5. Year-over-year, the HPSI is down 16.0 points.

Four of the HPSI’s six components fell month-over-month, including homebuying conditions and household income components. Offsetting much of that decline, however, was increased optimism regarding job security, with consumers reporting a significantly more positive view of the labor market compared to January, as evidenced by the latest employment numbers from the Bureau of Labor Statistics (BLS).

“As we expected, the HPSI remained relatively flat in February, but underlying data indicate growing job-related optimism among consumers, especially among lower-income and renter groups,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “With the growing likelihood that lockdown restrictions will continue easing as vaccination efforts ramp up, and with warmer weather on the horizon and another round of fiscal stimulus pending, these two segments of consumers may have good reason to feel more positive about the labor market.”

In terms of the labor market, the percentage of HPSI respondents who said they were not concerned about losing their job in the next 12 months increased from 75% to 82%, while the percentage who say they are concerned decreased from 24% to 17%. As a result, the net share of Americans who say they are not concerned about losing their job increased 14 percentage points month over month.

“This optimism appears to be well-placed, too, given Friday's jobs report from the Bureau of Labor Statistics, which showed the strongest net gain in payroll employment since October, although the unemployment rate remains quite high by historical standards,” said Duncan. “However, other components of the index remain well below pre-pandemic levels, so we believe there may still be room for improvement in housing and economic attitudes in the coming months, depending in part on the future path of mortgage rates.”

The percentage of HPSI respondents who felt it is a good time to buy a home decreased from 52% to 48%, while the percentage who say it is a bad time to buy increased from 37% to 43%. As a result, the net share of those who say it is a good time to buy decreased 10 percentage points month-over-month.

Whether a good time or bad time to buy a home, the recent wild winter weather negatively impacted the market, limiting would-be listings and delaying potential buyers.

The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 9% to 8%, while the percentage who expect mortgage rates to rise increased from 45% to 47%. The share who think mortgage rates will remain the same increased from 37% to 38%. As a result, the net share of Americans who say mortgage rates will go down over the next 12 months decreased 3.0 percentage points month-over-month.

Just last week, the 30-year fixed-rate mortgage crossed the 3.0% mark for the first time according to Freddie Mac’s Primary Mortgage Market Survey (PMMS), averaging 3.02% for the week ending March 4, 2021, up from the previous week when it averaged 2.97%. A year ago at this time, the 30-year FRM averaged 3.29 percent.

“Since reaching a low point in January, mortgage rates have risen by more than 30 basis points, and the impact on purchase demand has been noticeable,” said Sam Khater, Freddie Mac’s Chief Economist. “While purchase activity remains high, it has cooled off over the last few weeks and is currently on par with early March, prior to the pandemic. However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season.”

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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