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However, it is still far below pre-pandemic highs, according to new Fannie Mae data. The sentiment of prospective homebuyers’ purchases slightly improved in December.
According to Fannie Mae, persistent affordability issues will prevent buyers from entering the market in 2023, which will cause a further decline in home sales in the ensuing months.
Nevertheless, despite the obstacles to affordability, the Fannie Mae Home Purchase Sentiment Index (HPSI), which measures consumer confidence to sell or buy a home and the housing market, increased in December by 3 points, or 7 points, to 61, the agency reported.
This increase was attributed to consumers’ expectations that mortgage rates and home prices may decline over the year.
Doug Duncan, senior vice president, and chief economist at Fannie Mae noted that the HPSI, particularly the “good time to buy” component, continues to be very low by historical standards and that respondents continue to cite high home prices and unfavorable mortgage rates as the main causes of their pessimism.
The HPSI for December is only marginally above the record low of 56.7% set in October 2022.
On the buyer’s side, 21% of respondents said now was a good time to buy, up from 16% in November. About 76 percent of buyers agreed, down from the previous month’s 79 percent, that it was a bad time to buy.
51 percent of sellers, down from 54 percent in November, said it was a good time to sell their home. About 42% of respondents, up from 39% in the previous month, agreed that now is not a good time to sell.
Consumers lacked optimism regarding mortgage rates. In the coming year, only 14% of respondents predicted a decrease in mortgage rates, while 51% predicted an increase.
According to the agency, the average 30-year fixed rate mortgage rate will increase to 6 points 3 percent in 2023 from 5 points 3 percent in 2018, while the Mortgage Bankers Association (MBA) anticipates a decrease in rates to 5 points 2 percent from 6 points 6 percent during the same time frame.
Lending standards have become stricter as well, as shown by the MBA’s most recent Mortgage Credit Availability Index, which is in addition to mortgage rates being higher than they were two years ago.
The MCAI, which is benchmarked to 100, decreased slightly in December, dropping 0 points (1%) to 103 points (3), with both conventional and government MCATs declining.
Many lenders stopped lending altogether as a result of the market shift, which forced them to manage their operational costs by leaving certain origination channels. The MBA identified this as one of the main causes of the decline in credit availability.
Fannie Mae stated that it anticipates affordability to continue to be the main obstacle for prospective homebuyers throughout 2023, adding that the modest declines in rates and home prices may not give buyers enough purchasing power.
The MBA anticipates a decrease in the median price of existing homes to $371,400 in 2023 from $384,600 in 2018 and a decrease in the median price of new homes to $440,100 from $452,900 in 2022.
Duncan stated that since many current homeowners have already locked in lower mortgage rates, they may keep putting off listing their homes because there won’t be much of an incentive to do so until rates are more favorable.
In the ensuing months, we predict that the tension it creates will contribute to a further drop in home sales.
Reference Source: Housing Wire
