Mortgage in America

You Have The Money, Now You Just Need The House

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Homebuyers are feeling pretty discouraged by the housing market these days. The latest Fannie Mae Home Purchase Sentiment Index shows that just 35% of consumers believe now is a good time to buy a home, down from 47% in April. And those who believe it is a bad time to be a homebuyer increased to 56% from 48%.

“Consumers appear to be acutely aware of higher home prices and the low supply of homes, the two reasons cited most frequently for that particular sentiment,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Though low inventory, bidding wars and high prices have knocked down homebuyer sentiment, other factors, such as a rebounding economy and stable income levels, pushed the overall HSPI index up one point to 80 in May.

In fact, four of the HPSI’s six components measuring market expectations increased month over month. The HPSI is still 12.5 points higher than it was in May 2020, when forbearance and unemployment heavily weighed down consumer sentiment.

Because the housing market feels very much like a zero sum game at this point, sellers again felt good about their position. Just over two-thirds of those surveyed in June said it was a prime time to list a home and tempt the swarms of homebuyers, unchanged from the prior month.

Mortgage rate expectations changed a bit in May for prospective homebuyers and sellers: The percentage who expect mortgage rates to go up decreased from 54% to 49% while the share of those who think mortgage rates will stay the same increased from 33% to 38%. The remaining 6% are hopeful they may slide back down.

Since rates have fallen back below 3% once again, Fannie Mae’s economic and strategic group revised its expectations for purchase and refinance volume. The economic group cut $43 billion from its 2021 purchase volume forecast; it now estimates that purchase mortgages will hit $1.8 trillion by year’s end.

Because record low mortgage rates fueled the refinance wave of 2020’s housing market, Fannie Mae also revised its refi origination volume to $2.2 trillion in 2021, an increase of $125 billion from the previous month’s forecast.

On top of all of this, there are disappointments in the job sector of real estate.

The overall construction sector actually lost 20,000 jobs in May, though it was mostly concentrated among nonresidential specialty trade contractors. The construction sector remains an economic weak spot in many respects – it’s down 225,000 jobs from prior to the pandemic.

While commercial contractors are truly suffering, residential construction employment is at least moving in the right direction, even if gains there are tepid at best for the housing industry. According to the BLS statistics, residential construction employment, including specialty trade contractors, rose by just 1,900 jobs in May.

It’s a slower pace than in previous months, and definitely not good enough to ease supply constraints the market is currently grappling with, noted Fannie Mae chief economist, Doug Duncan.

For now, Fannie Mae’s housing industry economists don’t believe the pace of job creation shown in Friday’s report is significant enough to push the Fed to tighten monetary policy any earlier than previously signaled.

Jobs numbers missing the mark in both April and May’s likely took a great deal of pressure off the Federal Reserve to taper its ongoing bond buying program. The Fed has remained unwavering in assisting unemployment and keeping inflation near 2%. Despite subtle increases in inflation, the Fed has cited the current rebound as “transitory” – a sleepy economy waking up from a pandemic driven nap.

If unemployment numbers did rise to the occasion, the Fed may have felt the pressure to end emergency measures sooner than initially intended. The lackluster jobs report virtually guarantees that the Fed will continue to print money, even with louder voices expressing concern with inflation.