“Housing Market Frustrations”

Last week I spoke about the complacency we feel in the US economy despite some attractive economic metrics.  Yes, unemployment is historically low, yes GDP grew over 4% in the third quarter of 2023, and yes inflation seems more under control than it did in 2022.  Despite this good news, it seems we are inevitably waiting for the shoe to drop in the economy.  Again, as stated, the gap between economic data (being good) and consumer sentiment (being bad) has NEVER been wider.  One big area of the economy that certainly contributes to a negative sentiment that consumers have is the housing market. 

This recent article from Yahoo Finance paints a more detailed picture of exactly how Americans are viewing this current housing market.

In the latest survey from Fannie Mae measuring housing sentiment, 85% of respondents in October said now is a bad time to purchase a house because of high home prices and high mortgage rates. That marked a survey high.

Their downbeat outlook extended beyond housing, with 78% of respondents saying the economy is on the wrong track, Fannie Mae found. That’s up 7 percentage points from last month, with the vast majority once again saying inflation is the main culprit.

“Consumers expressed even greater pessimism toward the larger economy this month, in addition to their ongoing frustration with the housing market,” Fannie Mae chief economist Doug Duncan said in a statement. “We expect this tightness in household finances, along with high home prices and elevated mortgage rates, to prolong the affordability challenges facing many would-be homebuyers.”

A big constraint

Only 17% of respondents believe that mortgage rates will go down over the next 12 months, according to Fannie Mae, while 47% expect rates to increase and 36% expect rates to stay where they are.

Rates have hovered above 7% since mid-August, a stretch not seen since 2000. And though the 30-year fixed mortgage rate paused its multiweek climb toward 8% last week, “geopolitical uncertainty and continued ambiguity” around the Federal Reserve’s next moves “continue to stall improvements in the housing market,” Freddie Mac chief economist Sam Khater said last week.

Elevated rates are also keeping homeowners from selling. More than a third of respondents said it’s a bad time to sell a home, Fannie Mae found.

Any seller with a 3% rate will look at today’s rates that are more than double — at 8% or more — and they are just not prepared to take on that higher monthly payment,” Jeffrey Ruben, president of WSFS Mortgage, told Yahoo Finance. “It’s become a big constraint to inventory and sales.”

The continued dearth of resale properties on the market has propped up home prices, increasing affordability challenges. The latest reading on home values showed that prices hit another record high in August, and many Americans expect no relief any time soon.

“Traditionally when rates go up, prices go down to compensate for that. But when you have restricted inventory, prices aren’t going down, so you just are left hanging in there,” Ruben said. “It’s really depressed the market.”

Consumers are fed up

That pessimism is also overtaking the bright spots in Americans’ lives. Greater shares of survey respondents felt good about their job security, their income, and the future of their personal finance situation versus the prior month, Fannie Mae found.

Still, 78% of Americans think the economy is going in the wrong direction, up from 71% the previous month. That was also the highest share since June 2022 when 81% of respondents felt that way and the third-highest percentage since March 2011 when the question was first asked.

“Although the labor market is strong and wages have risen in the past year, consumers may believe that their purchasing power has not kept up with prices,” Duncan said. “Across all income groups, inflation has consistently driven the ‘wrong track’ belief since the end of last year, suggesting consumers are fed up with the high prices of many goods and services.”