Consumers Upbeat about Economy but Less Optimistic about the Housing Market

Written By: Joel Palmer, Op-Ed Writer

At a time when the economy is strong, attitudes toward home buying and selling are in decline.

Fannie Mae announced last week that its Home Purchase Sentiment Index declined in October to its lowest level in a year.

Fannie’s Home Purchase Sentiment Index (HPSI) reflects consumers' current views and forward-looking expectations of housing market conditions.

While consumers are generally optimistic about the economy and their personal finances, they are slightly more pessimistic about buying and selling their homes.

According to Fannie Mae:

• The net share of Americans who say it is a good time to buy a home fell 5 percentage points from last month to 21 percent.

• The net share of those who say it is a good time to sell a home fell 3 percentage points to 35 percent.

• The net share of those who say home prices will go up fell 2 percentage points to 37 percent.

• The net share of Americans who say mortgage rates will go down over the next 12 months dropped 1 percentage point to -57 percent.

• The net share of Americans who say they are not concerned about losing their job fell 1 percentage point to 78 percent.

• The net share of those who say their household income is significantly higher than it was 12 months ago remained unchanged at 19 percent.

“The contrast between the survey's findings of weak home buying sentiment and overall economic optimism mirrors what we're seeing in the broader economy,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “While economic growth posted the fastest back-to-back pace in four years in the third quarter, residential investment declined for the third consecutive quarter, a first for the current expansion.”

Freddie Mac said that high home prices and borrowing costs continue to affect housing activity. The GSE is forecasting total home sales to decline modestly this year to 6.07 million, and then regain momentum, increasing 1.8 percent to 6.18 million in 2019 and rising 1.1 percent to 6.25 million in 2020.

Freddie said home prices are expected to increase to 5.4 percent in 2018, with the growth rate slowing slightly to 4.6 percent in 2019 and even further to 2.9 percent in 2020.

In its latest mortgage rate survey, Freddie said the average 30-year fixed rate hit a seven-year high to an average of 4.94 percent last week.

Said Sam Khater, Freddie Mac’s chief economist: “The housing market continued to cool off in the fall with slowdowns in home sales, new construction and price growth. While we expect the weakness in housing activity to extend the next few months as the market absorbs the recent uptick in mortgage rates, the combination of strong economic growth and millennials moving toward homeownership should help home sales regain momentum and rise modestly in 2019.” 

Fannie noted that of those who said it's a good time to buy, 30 percent cited favorable economic conditions as the reason.

The U.S. economy grew at a robust 4.2 percent in the second quarter of 2018. Both Fannie and Freddie expect slower growth in the third quarter than what occurred in the second quarter, but still strong. Fannie believes when third quarter GDP is announced, it will come in at about 3.3 percent annual growth. Freddie said it expected third quarter growth to be announced at 3 percent.

Looking forward, Freddie expects GDP to grow at a rate of 3 percent for all of 2018, slowing to 2.4 percent in 2019, and dropping to 1.8 percent in 2020 as the effects of expansionary fiscal policy fade.

Fannie Mae maintained its full-year 2018 and 2019 economic growth forecasts of 3.0 percent and 2.3 percent, respectively.

About the Author

As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

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