Consumers believe that their outlook is getting better. But they are not necessarily ready to participate in the housing market just yet. The June Housing Survey [1] released by Fannie Mae [2] shows that consumer sentiment toward the housing market is continuing to improve as the overall economic outlook improves but it still sits well below the level necessary for the market to normalize.
"Since we began collecting monthly National Housing Survey data in June 2010, we've seen substantial progress in consumer home price expectations and other key attitudinal measures as the housing recovery gained its footing," said Doug Duncan, senior vice president and chief economist at Fannie Mae.
"Still, we do not expect to see ‘normal' levels of new residential construction, in the region of 1.6 million new housing units per year, before the end of 2016, our original projection. Such a feat would require a pace of growth in housing starts not seen in decades."
The survey indicates that consumer’s twelve month home price change expectation remained positive but dipped slightly compared to previous months, coming in at 2.4 percent. Further, 55 percent of consumers expect mortgage rates to increase in the next year.
"The uptick this month in the share of consumers expecting mortgage rates to go up and the accompanying decline in home price expectations reflect the pause of activity in the housing market so far this year," said Duncan. "Despite recent improvement, we now expect an annual decline in existing home sales due to weak volume in the first four months of the year associated with the rise in mortgage rates mid-last year and the current dearth of supply of lower-priced homes.
There is reason to believe that activity could pick up in the second half of 2014. According to the survey, the share of consumers who said that they were worried about losing their jobs dropped to the lowest level recorded since Fannie Mae began collecting the data in 2010.
An improving expectation level is consistent with the improving employment landscape [3]. The newfound security could spur potential homeowners to stop putting off their next home purchase. They appear to be more confident in their ability to get it done. In fact, 52 percent of respondents to the survey thought it would be easy for them to get a home mortgage today.
A good second quarter is needed to ensure that confidence in the recovery continues to steadily improve.