Despite recent talk about an interest rate easing in 2024 and a low likelihood of a severe recession, people still feel pessimistic. There is a general feeling of low housing confidence among both homebuyers and home sellers.
A rise in interest rates in 2022 contributed to a plummet in consumer confidence in the housing market. In 2023, confidence stabilized slightly, but quickly reached a “low-level plateau,” according to Fannie Mae.
A questionnaire that Fannie Mae uses for measuring home purchase sentiment is collected by the company. It includes several components, including people’s perceptions of whether right now is a good time to buy or sell, concerns about the job market, and expectations regarding interest rates, which were collected from 1,000 adults (aged 18-plus) who make household decisions.
Muted Outlook Due to Economic Uncertainty
Real estate investors are not encouraged by the November results. Although the mood is not quite as gloomy as it was last year – the overall index is up 7 points – there is still a long way to go before consumer confidence in the housing market is sufficiently restored.
There is a new survey low of 14% of respondents who believe now is a good time to buy a home, the most striking figure in the index. In the context of rising unemployment and a more uncertain economic outlook, respondents’ expectations about interest rate trajectory, and their own purchasing power, are incredibly low.
During the end of last year, when interest rates reached 7%, a level not seen in over a decade, Doug Duncan, Fannie Mae senior vice president and chief economist, says that a plurality of consumers expected home prices to decrease; however, that optimism faded over the course of 2023.
In the current survey, 22% of respondents believe mortgage rates will decline in 2024. There has been an increase of 8% since last month, but this optimism is still seen only among the minority of respondents, with the majority expecting rates to rise further (44%) or stay the same (34%).
In addition, 24% of those surveyed believe home prices will fall, while the majority again believe they will continue to rise or remain the same, so the overall picture is clear: At the moment, consumers simply do not believe that affordability will improve.
Additionally, most households are experiencing stagnant or declining incomes, with 68% reporting an income that is similar to before, and 12% reporting a large decrease. The number of people who said their income significantly increased was only 19%.
The Voices of the People
With home prices and interest rates constantly increasing, it shouldn’t come as a surprise that people lose confidence in their ability to buy a home-or are reluctant to sell their current one.
Sellers are hesitant to list if they do not need to sell due to higher interest rates stretching buyers’ finances. In addition, they are concerned about affording the mortgage on their next home and the interest rates at the current level.
A different attitude is gaining traction among buyers who are still in the game, often grabbing deals on outdated houses or from motivated sellers. While those who want to own their own homes are still trying to do so, they are just smarter about it, and they are willing to compromise on size in order to do so.
Investing in real estate and flipping houses is actually a good thing. As housing affordability declines, it’s a good time to buy smaller, fixer-upper houses.
According to Shmuel Shayowitz, president and chief lending officer of Approved Funding, his experience on the ground isn’t as bad as the report suggests, adding, “My clients are starting to get more active in the market.”
It remains to be seen whether the Fed will drop rates next year, as widely predicted. Consumer confidence in the housing market is very likely to bounce back if rates fall next year and the U.S. avoids the much-talked-about recession.
Have you found it increasingly difficult to navigate the housing market? Buyers and sellers both know this without a doubt. Most people, however, will eventually override their misgivings when it comes to owning a home. Despite current pessimism, investors who can offer a value-for-money, ready-to-move deal in local markets where demand for single-family homes is high may still be in luck.