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Fannie Mae: housing market confidence should rise soon

Vaccine rollout, warmer months should buoy housing numbers

Fannie Mae‘s Home Purchase Sentiment Index (HPSI), a composite index designed to track the housing market and consumer confidence to sell or buy a home, fell 1.2 points in February.

Fear not, experts say – better days are ahead.

Overall, the HPSI hit 76.5 last month, down from 77.7 in January. A small drop was expected, according to Fannie Mae Senior Vice President and Chief Economist Dave Duncan, but housing market confidence should be reflected in the coming months.

“The HPSI remained relatively flat in February, but underlying data indicate growing job-related optimism among consumers, especially among lower-income and renter groups,” Duncan said.

Duncan said the likelihood of COVID-19 lockdown restrictions easing as vaccination efforts ramp up, combined with the forthcoming warmer weather and another round of fiscal stimulus checks, will give consumers good reason to feel more confident about the labor and housing markets.

“However, other components of the index remain well below pre-pandemic levels, so we believe there may still be room for improvement in housing and economic attitudes in the coming months, depending in part on the future path of mortgage rates,” Duncan said.

Borrowers remain relatively pessimistic on the state of home prices, as the HPSI reported 47% of respondents expect home prices will go up in the next 12 months – up from 41% last month. Those who believe prices will go down increased for the second straight month, this time from 17% to 18%.

A larger percentage of HPSI respondents now believe mortgage rates will go up as well, from 45% to 47%. They were correct, as rates climbed above 3% for the first time since July.

Since reaching a low point in January, mortgage rates have risen by more than 30 basis points as the economy works to recover, and according to Sam Khater, Freddie Mac’s chief economist, the impact on purchase demand has been noticeable.

“While purchase activity remains high, it has cooled off over the last few weeks and is currently on par with early March, prior to the pandemic,” Khater said. “However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season.”

The percentage of HPSI respondents who say it is a good time to buy a home decreased from 52% to 48%, while the percentage who say it is a bad time to buy increased from 37% to 43%. Likewise, the percentage of respondents who say it is a good time to sell a home decreased from 57% to 55%, while the percentage who say it’s a bad time to sell increased from 33% to 35%.

A turnaround in housing market confidence might be on the horizon, though. Mortgage applications for a 30-year fixed rate experienced its largest single-week increase in almost a year, reaching 3.23% in the week ending Feb. 26.

Job security did see an uptick in last month’s responders, as the percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 75% to 82%. The percentage who say they are concerned decreased from 24% to 17%.

Expect these numbers to continue trending upward, as most economists agree the housing market will be one of the driving factors in buoying the economy post-COVID.

But a comprehensive vaccine rollout remains key, Duncan said.

“The best policy for economic recovery is the broad distribution of an effective vaccine, which is underway,” he said. “The sooner this can be successfully accomplished the sooner growth can accelerate, and our thought is that by mid-year vaccine distribution efforts will be well-established, allowing for a strong second half.”

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