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Americans have resigned themselves to the prospect that home prices and mortgage rates won’t be coming down over the next 12 months, but most remain confident their jobs are safe despite recession warnings, according to a survey of homeowners and renters released Friday by mortgage giant Fannie Mae.
Last year’s abrupt runup in interest rates created a “lock-in effect,” making many homeowners reluctant to put their homes on the market because they’d have to take out a mortgage at a considerably higher rate to buy their next home. The lock-in effect has fueled inventory shortages in many markets that’s propped up home values, even as higher mortgage rates have made home ownership unattainable for many would-be homebuyers.
Fannie Mae’s monthly National Housing Survey showed that only one in three Americans (36 percent) surveyed in June thought home prices would come down in the next 12 months, and only 16 percent expected mortgage rates to ease.
“Confidence in the housing market appears to have plateaued at a relatively low level, suggesting that many consumers may be coming to terms with elevated mortgage rates and high home prices,” said Fannie Mae Chief Economist Doug Duncan, in a statement. “Home prices continue to be supported by the tight supply of homes available for sale, and, compared to the end of last year, fewer respondents today believe home prices will decrease over the next 12 months.”
The Fannie Mae Home Purchase Sentiment Index, a gauge of buyer and seller sentiment based on the National Housing Survey’s results, was essentially flat in June, rising by 0.4 points from May to June but up 1.2 points from a year ago to 66.0.
The slight increase in the index was attributed to net gains in two components from May to June: Buying conditions and change in household income. But consumers were more pessimistic about selling conditions, mortgage rates, and job security while home price outlook was unchanged.
The percentage of respondents who expect mortgage rates to decline in the next 12 months decreased from 19 percent in May to 16 percent in June. But the percentage who expect rates to go up also fell, from 50 percent in May to 47 percent in June. In other words, more people expected mortgage rates to stay the same — 36 percent in June, up from 31 percent in May.
Those results show that consumers’ mortgage rate expectations have tempered, Duncan said, noting that “a larger share of respondents think mortgage rates will stay the same over the next year, whereas mid-to-late last year, most thought rates would continue going up. This seems to signal that consumers are adapting to the idea that higher mortgage rates will likely stick around for the foreseeable future.”
However, the survey was taken before mortgage rates hit new 2023 highs this week on the release of strong economic data that raises the odds that the Federal Reserve will resume hiking rates this month after pausing in June.
In a June 26 forecast, Fannie Mae economists said Fed tightening is likely to lead to a “modest recession” in the fourth quarter of this year, with 2023 home sales falling 14.3 percent, to 4.86 million.
“We continue to forecast home sales to slow in the second half of the year, compared to the first half, due to ongoing affordability constraints and lack of housing supply,” Duncan said Friday.
A recession would allow Fed policymakers to reverse course on rates, and economists at Fannie Mae and the Mortgage Bankers Association predict mortgage rates will come down later this year or next.
In a June 20 forecast, MBA economists predicted rates on 30-year fixed-rate mortgages will drop to an average of 5.8 percent during the final three months of this year. In their latest forecast, Fannie Mae economists don’t see that happening until the third quarter of 2024.
Home prices surged during the pandemic as Fed easing brought mortgage rates to historic lows. Since then, home price appreciation has slowed but prices haven’t come down in many markets, as elevated mortgage rates and inventory shortages driven by the lock-in effect have provided support for home values.
While 26 percent of consumers polled by Fannie Mae in June expect home prices to come down in the next 12 months, that’s down from 28 percent in May and 37 percent in January. The percentage of Americans who think home prices will go up over the next 12 months also fell from 39 percent in May, to 36 percent in June. The most popular sentiment in June, expressed by 37 percent of respondents, was that home prices will stay the same over the next year.
With home prices and mortgage rates at levels that have priced many buyers out of the market, only 22 percent of consumers surveyed by Fannie Mae in June thought it was a good time to buy. But that’s up from 19 percent in May, and the percentage who thought it was a bad time to buy also declined by 2 percentage points, to 78 percent.
While the net share of consumers who said June was a good time to buy increased by 5 percentage points from May, it remained at negative 56 percent — and hasn’t been positive since the spring 2021 homebuying season.
While 64 percent said June was a good time to sell, that’s down from 65 percent in May. With 36 percent saying it was a bad time to sell, the net percentage of those who said it was a good time to sell decreased by 3 percentage points from May to June, to 28 percent.
Despite warnings that a recession may lie ahead, 77 percent of employed Americans polled by Fannie Mae in June said they’re not concerned about losing their job, unchanged from May. The percentage who said they were concerned — 22 percent — was also unchanged from May. But due to rounding, the net percentage of those who said they weren’t concerned about losing their job fell from 55 percent in May to 54 percent in June.
In their efforts to fight inflation, Federal Reserve policymakers are acutely focused on labor market tightness and rising wages. Only 19 percent of those polled by Fannie Mae in June said their household income was significantly higher than it was 12 months ago. That’s down from 20 percent in May, and a 2022 high of 27 percent in November.
The percentage saying their income was significantly lower fell to 10 percent in June, and the percentage who said their income was about the same increased to 71 percent. So the net percentage of those who said their income was significantly higher than 12 months ago increased from 8 percent in May to 9 percent in June.
In addition to being pessimistic about homebuying, most Americans continue to think the economy as a whole is on the wrong track.
But the percentage who thought the economy is on the right track increased from 24 percent in May to 26 percent in June, and is up from 14 percent a year ago.
About three in four Americans (74 percent) surveyed by Fannie Mae in June said the economy is on the wrong track, down from 76 percent in May and 81 percent a year ago.
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