Through its recent interest rate hikes, the Federal Reserve (the Fed) is hoping to throw cold water on America’s overheating economy. Now drenched, consumers are giving real estate the cold shoulder.
This phenomenon emerges in the Fannie Mae June 2022 Home Purchase Sentiment Index® (HSPI). The index is based on a nationwide survey that asks consumers about their current and future expectations regarding the housing market. Year-over-year, the full index plummeted 14.9 points, to 64.8.
The only time in the last decade consumers were more pessimistic was in April 2020, at the height of the COVID-19 pandemic. Consumer sentiment often trumps more concrete indices like Buyer Purchasing Power because — as real estate agents are well aware — homebuyers are emotional creatures first.
Fannie Mae tracks this emotion by surveying consumers on:
- whether they think it’s a good or bad time to buy or sell a home;
- what direction they expect home prices and mortgage interest rates to move;
- their level of concern about losing their jobs; and
- whether their income is significantly higher or lower from the prior year.
When asked about their views on the present and future of the national housing market:
- 20% of respondents said it’s a good time to buy, while 75% said it’s a bad time to buy; and
- 68% said it’s a good time to sell, while 26% said it’s a bad time to sell.
When asked about future projections of housing market conditions, the survey revealed:
- 44% of respondents expect home prices to go up over the next year, while 27% expect home prices to go down; and
- 5% expect mortgage interest rates to go down over the next year, while 67% expect mortgage rates to go up.
When asked about their financial situations:
- 78% of respondents said they are not concerned about losing their jobs, while 21% said they are concerned; and
- 25% said their household income is significantly higher than the prior year, while 16% said their household income is significantly lower.
Also of note, a record-breaking 81% of consumers said the economy is on the wrong track.
These metrics suggest consumers are growing increasingly discouraged with the wider economy — as inflation continues to run hot, interest rates rise and recession looms large.
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Consumer pessimism and recession
Consumer attitudes are a bellwether for real estate professionals gauging their future income. But savvy agents and brokers also know to take other factors into account, including:
- fluctuations in home prices;
- climbing mortgage interest rates;
- seasonal differences in sales volume;
- the quantity and quality of jobs held by consumers in their service areas;
- investor and real estate speculator activity;
- negative equity status; and
- homebuyer savings rates.
Still, consumer confidence serves as the North Star in a constellation of economic warnings. When consumers are pessimistic about their job options, their finances or the broader economy, they tend to rein in spending — starting with big ticket purchases like houses.
With consumers overwhelmingly expecting interest rates to rise over the next year and roughly one-in-five worrying about job stability, many lack the finances and confidence to participate in their local real estate market. Crucially, the Fannie Mae HSPI reveals more consumers generally see 2022 as a bad market all around.
The more cautious consumers grow, the more the economy contracts in tandem. This fuels the “chicken or the egg” debate on whether a slowing economy brings about consumer pessimism or vice versa.
More importantly, some agents see this as a compounding spiral (and a death knell for their real estate licenses). But firsttuesday forecasts home sales volume and prices to remain low only until the years following 2025 — around renewal time for more junior licensees. For this group, staying in the game means diversifying their skills.
To create more ways to earn income, agents can branch out by building on their current experience as a real estate agent. This includes:
- becoming a broker;
- becoming a notary public;
- getting a Mortgage Loan Originator (MLO) endorsement; or
- becoming a property manager — a popular recession-proof option.
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Those who drop out of the profession entirely (and fail to renew their licenses) will need to retake the California DRE State Exam. But professionals who keep their licensure up to date will be well-prepared to catch the post-recession expansion market.
The bottom line: consumers are uneasy, and plan to delay major purchases until they feel the economy is at an inflection point. That might mean weathering further rate hikes by the Fed to cool inflation. It might mean access to mortgage money will need to expand again. It might even mean waiting out the still undeclared recession. Until then, diversification is an agent’s best friend.
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Real estate professionals: do your current homebuyers match the doom-and-gloom sentiment from Fannie Mae’s survey? Share your clients’ confidence (or pessimism) with your colleagues in the comments below.
