Fannie Mae published a press release in August detailing changes to the Home Purchase Sentiment Index (HPSI) in July, 2018. The HPSI draws from data in the National Housing Survey (NHS) to form a more complete picture of buyer and seller optimism in the housing market from month to month.
July, 2018 was the second consecutive month of drops in the HPSI after record high points in April and May. Buyer and seller optimism showed further reduction in July, ending with an HPSI of 86.5, a drop of 4.2 points from June 2018.
Upward Market Trends Reverse
The HPSI reductions show a downward movement in housing market optimism. Before June, the trend was generally positive with high market optimism. Annually, the HPSI tends to dip around June or July every year, as the high season for home sales ends.
July’s HPSI changes can be attributed to reductions in 4 of the 6 main measures in the index:
- 4% reduction in respondents who said now is a good time to buy a house.
- 6% reduction in respondents who said now is a good time to sell a house.
- 7% reduction in respondents who believe home prices will increase in the next 12 months.
- 11% reduction in respondents who are unconcerned about losing their jobs.
Together, these reductions demonstrate reduced market optimism for real estate, and suggest the beginning of a downturn that is likely to continue.
Home Prices Rising, Sales Reducing
According to Doug Duncan, senior vice president and chief economist at Fannie Mae, “Home purchase sentiment seems to have reached a plateau, with potential home sellers likely struggling to find a home to buy amid slow supply growth, expectations for rising mortgage rates, and significant home price increases.”
As a result, the housing market is facing lower supply, as current home owners are reluctant to put their homes on the market because of fear of unfavorable buying conditions when they seek to buy a new home. Current homeowners state that now is a good time to sell a home, but a bad time to buy a home because of higher prices, which creates an unfavorable circumstance for anyone selling for a reason other than necessity.
Tightening Housing Market and Pessimism Toward Mortgage Rates
As the pool of potential buyers starts to dwindle, so does the number of available homes. Market shrinkage nationally is largely due to the poor buying climate, which is creating a poor environment for trading up from an existing home. Many homeowners are unwilling to attempt a trade up to a different home because of rising prices, which is causing them to keep their home off the market.
Another factor contributing to the tightening housing market is pessimism toward mortgage rates. Survey respondents pointed to this as a reason they’re less willing to enter the real estate market, as they fear potentially higher mortgage rates. To build on that fear, many Americans are less optimistic about the chance of home prices increasing in the next 12 months.
Buyers are less willing to buy a home with a higher mortgage interest rate, if they fear the home may reduce in value over the short term.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients with HARP refinancing to lower their monthly mortgage payments.