Rising Rates Hurting Homebuyer Sentiment -Fannie

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Consumer perceptions about rising interest rates and stagnant
income levels were the main contributors to a half-point decrease in Fannie Mae’s
Home Purchase Sentiment Index®
(HPSI) in December.  The HPSI, which
reflects key variables from the company’s National Housing Survey (NHS), was
80.7 in December.  It was the fifth
consecutive month in which the index declined and the measure is 2.5 percentage
points lower than in December 2015.

 

 

The net
share of consumers who report an income significantly higher than a year earlier
fell five percentage points to a net of only 10 percent.  The net of consumers expecting mortgage rates
to decline over the next year fell four points to a negative 55 percent. 

Offsetting
these numbers were a two-point rise in the net share of respondents who say it
is a good time to buy a house which went from 30 to 32 percent, and a gain of four
points to a net of 68 percent of answers in which respondents report confidence
they would not lose their jobs in the next year.   Both
the net percentage of those who believe it is a good time to sell and the net
share who believe that home prices will go up remained unchanged in December at
38 percent and 35 percent respectively.

“Despite the post-election bump in
general consumer attitudes, a rapid rise in mortgage rate expectations has
tamped down home purchase sentiment, at least in the near term. A spike in
economic optimism in the immediate aftermath of an election is typical. Whether
consumers will sustain this level of optimism into 2017 remains unclear,” said
Doug Duncan, senior vice president and chief economist at Fannie Mae. “The
spike in interest rates reflects, in part, the market’s anticipation of pro-growth
policies from the incoming Administration. If this optimism comes to fruition,
it should translate into stronger income growth and increased job security for
consumers – the two HPSI components that could help support housing sentiment
this year.”

The Home Purchase Sentiment Index
(HPSI) distills information about consumers’ home purchase sentiment from the
NHS into a single number that reflects current views and forward-looking
expectations of housing market conditions. 
The NHS is conducted monthly by telephone among 1,000 consumers, both
homeowners and renters.  Respondents are
asked more than 100 questions used to track attitudinal shifts, six of which
are used to construct the HPSI.  The
December 2016 National Housing Survey was conducted between December 1, 2016
and December 21, 2016.

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