Americans are reluctantly accepting the new housing norm, a new survey suggests.
Fannie Mae’s index measuring housing sentiment increased slightly in June, with 4 of 6 surveyed components largely staying stagnant month over month.
The share of folks who said it’s a “good time to buy” increased to 22% during the month from 19% in May but remained well below the historical trend.The “good time to sell” component remained elevated at 64%, down slightly from last month’s 65%.
The minimal changes in multiple components signal that consumers have resigned themselves to a market where mortgage costs and home prices won’t be softening anytime soon — a recipe for sluggish activity going forward.
“Confidence in the housing market appears to have plateaued at a relatively low level,” Fannie Mae Chief Economist Doug Duncan said in a statement, “suggesting that many consumers may be coming to terms with elevated mortgage rates and high home prices.”
Mortgage rates to remain elevated The 2% to 3% mortgage rates homebuyers saw in the last decade were more the exception than the rule, and homebuyers are finally making peace with where borrowing costs are.
“I think it’s a realization that those 3% or below mortgage rates were the product of extraordinary circumstances,” Keith Gumbinger, vice president at HSH.com , a mortgage resource website, wrote to Yahoo Finance.”The first episode was the all-out response to the Great Recession, and the latest was the even more all-out Fed response to the pandemic outbreak.”
The Federal Reserve has signaled that its benchmark interest rates — which indirectly affect fixed mortgage rates — will remain high, with potentially only two more rate hikes in the offing this year .
Folks hold a similar view — that rates are close to where they will remain in the next 12 months.Just 31% believe rates will keep rising in the coming year, while 51% of respondents in June said rates would go up, a drop from 73% who expected rates to increase a year ago .
“This seems to signal that consumers are adapting to the idea that higher mortgage rates will likely stick around for the foreseeable future,” Duncan said.
Borrowers’ rate expectations came during a week when the 30-year fixed mortgage rose to 6.81% , the highest level in 2023 and since last November.As rates stay high, the incentive for homeowners to move remains low, aggravating a persistent inventory problem in the housing market.
“People are only moving if they have to,” Luis Padilla, CEO of Oceanside Realty and Padilla Team in Miami, previously told Yahoo Finance .”That move-up buyer doesn’t want to sacrifice their low interest rate.It’s a segment of the market that’s pretty much gone.”
High prices to stay For the second consecutive month, the net share of consumers who expect prices to increase was 11%.
That’s the highest share since June 2022, according to the Fannie Mae survey .
That jibes with what’s happening on the ground.While year-over-year prices fell in April, according to the latest S&P CoreLogic Case-Shiller US National Home price index , prices increased for the third month in a row, signaling a recovery.
A new report out this week also found that the average US home is selling above its asking price for the first time in almost a year.
“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,” Duncan said.
A Sale Pending sign hangs in front of a property in San Francisco, Tuesday, April 18, 2023.(AP Photo/Jeff Chiu) Home sales slump Stagnant housing sentiment is translating to lackluster transaction volumes.
For instance, the pending home sales index — a forward-looking snapshot of the housing market — fell 22.2% in May year over year, with all four US regions seeing a yearly index decline, according to data released by the National Association of Realtors .
Month over month, contract signings declined 2.7% from April.
That trend is likely to continue, Duncan said.
“We continue to forecast home sales to slow in the second half of the year, compared to the first half,” Duncan said, “due to ongoing affordability constraints and lack of housing supply.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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