Homebuyer Misery Hits an All-Time High, Fannie Mae Survey Shows

Americans who say now is a “bad time to buy” a home jumped to an all-time high of 73% last month, according to a report on Thursday from Fannie Mae.

That’s up from 67% a month earlier, the nation’s largest mortgage financier said. Homebuyer optimism started eroding in February 2021, according to the report that began tracking data in 2010.

Confidence in the housing market is falling because of rising mortgage rates, high home prices, and “macroeconomic uncertainty” including concern about the highest inflation in four decades, said Mark Palim, Fannie Mae’s deputy chief economist. The gloomy outlook was held by all the demographic groups surveyed, he said.

Home shoppers are also dealing with a shortage of available properties. The inventory of homes on the market fell to a record low of 850,000 in January before rising to the second-lowest on record in February, according to data from the National Association of Realtors.

“We also saw a survey-high share of consumers expecting their financial situations to worsen over the next year – this was especially true among current homeowners,” Palim said. “These concerns, together with the run-up in mortgage rates since the end of 2021, will likely diminish mortgage demand from move-up buyers – and fewer move-up buyers mean fewer available entry-level homes, adding to the rising-rate challenges for potential first-time homebuyers.”

The U.S. economy is facing its biggest challenge since the 2008 financial crisis. While the labor market posted record gains last year and the number of employed Americans is now just 1.6 million below the level it was at when the Covid-19 pandemic first struck, wages have struggled to keep up with inflation.

Surging mortgage rates, in addition to higher prices for food and other necessities, are making it difficult for families to afford to pay sky-high prices for homes, Palim said.

“If consumer pessimism toward homebuying conditions continues and the recent mortgage rate increases are sustained, then we expect to see an even greater cooling of the housing market than previously forecast,” Palim said.

Sales of existing homes probably will drop 6.1% this year after posting an 8.5% gain in 2021, according to a forecast published by Fannie Mae last month.

The refinancing share of mortgage originations likely will fall to 35% in 2022 as home-loan rates increase, compared with 58% in 2021, the forecast said. Refinancings supported the consumer spending that accounts for about three-fourths of U.S. GDP because they lowered monthly loan payments and put more spending money in the pockets of homeowners.

Mortgage rates have jumped more than one and a half percentage points since the beginning of the year, according to Freddie Mac, Fannie Mae’s smaller rival. The average U.S. rate for a 30-year fixed mortgage was 4.72% last week, compared with 3.11% in the final week of 2021, Freddie Mac said.

Palim isn’t the only housing economist saying home sales will fall. Costlier financing will reduce transactions by 10% this year, compared with last year's 8.5% gain, said Lawrence Yun, chief economist for the National Association of Realtors. Sales of previously owned homes probably will drop to 5.95 million in 2022 from last year's 15-year high of 6.12 million, he said.

In addition, the rate of home-price gains probably will slow to 5% this year, compared with last year's record increase of 17%, Yun said.

“Higher mortgage rates will inevitably pull home sales down in the coming months and slow home price appreciation,” Yun said.