Consumer Confidence in US Housing Market Plunges to Record Low, Says Fannie Mae

Meanwhile, prices remain higher than last year

A view of Fannie Mae headquarters in Washington, D.C. (Karen Bleier/AFP/Getty Images)

Consumer confidence in the American housing market plunged to record low last month, according to a new survey.

Growing mortgage rates, higher home prices, and economic instability have led to increased pessimism in the housing market nationwide.

Only 16 percent of consumers surveyed said that they would consider buying a home in October, according to Fannie Mae’s monthly Home Purchase Sentiment Index® (HPSI).

The index fell 4.1 points in October to 56.7 for its eighth consecutive monthly decline—the lowest reading since the survey started in 2011.

In total, the HPSI is down 18.8 points year over year, which is in line with earlier projections that the housing market will continue its decline through next year.

Respondents who said they felt positive about selling their home also fell from 59 to 51 percent.

At least 37 percent of buyers last month said they expect home prices to drop over the next twelve months compared with 35 percent in September.

Meanwhile, 65 percent of those surveyed believe that mortgage rates will rise next year.

The Bigger Picture

The HPSI reviews sentiment regarding home prices, mortgage rates, and the job market; not just the sale and purchase of homes, combining them into a single index rating.

“Consumers are increasingly pessimistic about both home-buying and home-selling conditions. Amid persistently high home prices and unfavorable mortgage rates, the ‘bad time to buy’ component increased to a new survey high this month, while the ‘good time to sell’ component continued its downward trend,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

The Federal Reserve’s hawkish interest rate policy this year has led to the massive downturn in the once booming housing market.

The Fed’s attempt to slow the economy to fight high inflation has seen a rise in mortgage rates and, when combined with an existing housing shortage and high purchase prices, has led to a massive halt in sales.

The average rate on the 30-year fixed mortgage rose from around 3 percent at the the start of the year to cross the 6 percent threshold in June, according to Mortgage News Daily.

It is now at a record high 7.32 percent, witnessing a 15 basis point increase over the last seven days, reported Bankrate.

“As continued affordability constraints reduce homebuyer demand, and homeowners become reluctant to sell at potentially reduced prices, we expect home sales to slow even further in the coming months, consistent with our forecast,” wrote Duncan.

Prices Continue Tumble in September

Home prices fell again in September, but at a slower monthly pace compared with July and August, according to Black Knight, a real estate data software analytics firm.

Purchasing prices dipped 2.6 percent between September and June, the first three month decline since 2018, which coincided with the rise in interest rates.

The last time housing prices last fell at that rate was back in early 2009, in the aftermath of the Great Recession.

However, prices were still 10.7 percent higher in September compared with the same month in 2021.

Consumer concern that home sales prices will decrease have reached a new high, particularly among homeowners—a sign that gives further support to Fannie Mae’s forecast of a decline in home prices next year.

“As continued affordability constraints reduce homebuyer demand, and homeowners become reluctant to sell at potentially reduced prices, we expect home sales to slow even further in the coming months, consistent with our forecast,” Duncan said.