The latest monthly housing survey from Fannie Mae revealed an interesting contradiction.
Last month, a new survey-high 39% of respondents said they expected the value of mortgages to decrease in the next 12 months.
At the same time, few expect housing prices to rise at the same time. And many expect housing prices to fall.
So despite home purchases being affordable due to low interest rates, buyers don’t think prices will rise.
What does this say about home buyer demand as mortgage rates fall?
But We Were Told Bidding Wars Will Return When Mortgage Rates Fall
Fannie’s monthly Home Purchase Sentiment Index (HPSI) rose slightly (0.6 points) to 72.1 in August from a month earlier.
But it remains very low, with most of the 1,000 respondents saying that it is a bad time to buy and a bad time to sell.
Only 17% said it was a “good time” to buy a home in August, which has been the lowest for several months and is just above the survey’s all-time low.
Meanwhile, 83% said it was a “bad time” to buy a home, the highest share since the survey’s inception.
Meanwhile, only 65% say it’s a good time to sell, and 34% say it’s a bad time. As of August 2021, the “good time” to sell has dropped from 54% to 31%.
So it seems that no one is happy with the current state of the housing market, which continues to be characterized by a mismatch between buyers and sellers.
Sellers are told they’re not being honest about what they’re asking, and buyers say it’s too expensive. But no one agrees.
There is also a lack of inventory in many markets, so there is little to choose from and often not what a potential buyer is looking for.
All in all, we’ve seen a significant decline in home sales, especially when you factor in the ongoing impact of foreclosures.
It’s also strange to see this sentiment given the narrative we’ve been hearing for some time that the housing market will turn into chaos when house prices fall.
Well, they went from about 8% last year to over 6% last year. You’d think that would be enough to get the ball rolling.
The Economy (and Maybe Higher Home Prices Too!)
As I wrote last week, it’s no longer about the mortgage rate. Many consumers have jumped on the “price drop” bandwagon.
However, they also say that it is not a good time to buy. So you need to look elsewhere for your answer.
Are home prices too high, even with mortgage rates nearly 2% below their peak last year?
Or does the economy worry more, as the Fed dances around recession and more rate cuts are now expected next year and change?
The majority of consumers surveyed by Fannie Mae said they are not concerned about job losses (78%), down from 82% in 2021 but still high.
But respondents have been more pessimistic about household income compared to last year, with more saying it is “much lower” than “much higher.”
This may also reflect the purchasing power of their dollars, which have been eroded by inflation in almost everything.
So you start to wonder if consumer sentiment is getting worse as the economy shows signs of slowing down, all this rising unemployment.
This is more important than rates. And it really explains why mortgage rates and home prices don’t have an inverse relationship.
If mortgage rates are expected to decrease due to sluggish economic conditions, wouldn’t you argue that housing price growth might as well?
I have argued that house prices and values can fall in parallel for this reason, despite the fact that abnormal declines are rare.
But at least it dispels the idea of the home buyer being in a hurry when prices drop. Yes, prices are down during the slowest time of year. And they are still significantly higher than they were as recently as early 2022.
So maybe we need prices to continue falling and for the spring 2025 home buying season to happen.
Then we will have a better idea of where this housing market is going next.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
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