Homebuyer sentiment has waned to a new low in 2021.

A monthly national survey conducted by Fannie Mae provides data about the attitudes, intentions and financial considerations surrounding consumers as they relate to the housing market.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) is extracted from information collected in the survey, specifically relating to a few key questions pertaining to the housing and mortgage markets.

When asked about their views on the present and future of the national housing market:

  • 28% said it’s a good time to buy a house, while 66% said it’s a bad time to buy; and
  • 75% said it’s a good time to sell a house, while 20% said it’s a bad time to sell.

Looking ahead:

  • 46% said home prices will go up in the next year; and
  • 5% said mortgage interest rates will go down over the next year.

On the household finance side of things:

  • 13% said they are concerned about losing their job in the next year; and
  • 27% said their household income is significantly higher compared to the year before.

The HPSI decreased 3.9 percentage points in July 2021 to 75.8, up from 74.2 a year earlier. To arrive at an index figure, the researchers average the share of positive responses to each question.

Consumers’ views on buying in the current market are at the lowest level the survey has seen, which extends back to 2010.

How sentiment translates to real estate purchases

Despite the prevailing consumer attitude that now is the time to sell, it doesn’t mean homeowners are necessarily acting on those attitudes.

That’s because most homeowners who sell their homes end up buying replacement property. This means sellers will need to engage in buying, something consumers overwhelmingly recognize as a struggle in 2021.

The two main frictions causing a negative outlook on buying in the current housing market are:

Another factor keeping inventory low in 2021 is the continued impacts of the foreclosure moratorium, which have allowed many would-be sellers to remain in their homes under forbearance programs. While the foreclosure moratorium expired at the end of July, homeowners remain protected from eviction due to foreclosure through September 30, 2021. At that time, expect to see a rise in inventory for sale.

Though many will not act on selling due to the obstacles in buying a replacement residence, others will take advantage of this seller’s market.

But, although the rising home values and low multiple listing service (MLS) inventory numbers may signal it’s the time for sellers to sell, savvy investors know the housing market remains in a hold phase, and has been since the 2020 recession began. [See RPI e-book Real Estate Economics Chapter 2.4]

Although home prices are competitively high today, with low-tier home prices averaging 20% higher than last year in California, and mid- and high-tier home prices 21% higher than the year before as of May 2021, they won’t last for long.

As a result of rising 90+ day delinquencies and historic job losses stemming from the 2020 recession, today’s high prices will begin to drop. The federal foreclosure moratorium expired at the end of July and federally-backed mortgages will no longer offer forbearance by the end of September. When these programs expire, foreclosures will return to the market, as well as forced sales from homeowners with sufficient equity to avoid a foreclosure, but without the month-to-month income to make mortgage payments.

The significance of new inventory in the form of forced sales will drag down home prices, bottoming in 2023.

With the coming change in home prices and inventory levels, expect to see consumer sentiment shift in response to these changing conditions in the housing market. The business cycle will then produce a buyer’s market, anticipated to begin around 2023-2024 along with the jobs recovery.

Related article:

Consumers expect home prices to continue rising in 2021

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