Easing Rates and Home Prices Boost Homebuyer Sentiment, Though Pessimism for 2023 Remains
Written By: Joel Palmer, Op-Ed Writer
Homebuyer sentiment for 2023 mostly matches industry projections for this year’s housing and mortgage markets, according to recent surveys and forecasts.
Fannie Mae released its latest monthly Home Purchase Sentiment Index last week. It showed that while sentiment is improving, it remains well below pre-pandemic levels.
"In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "However, the HPSI remains very low by historical standards, particularly the 'good time to buy' component, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism.”
“As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers, as even small declines in rates and home prices – from the perspective of the buyer – may not produce sufficient purchasing power. At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable. We think the resulting tension will contribute to a continued decline in home sales in the coming months.”
The percentage of respondents who say it is a good time to buy a home increased from 16 percent to 21 percent month-to-month. The percentage who say it is a bad time to buy decreased from 79 percent to 76 percent.
A little more than half of respondents (51 percent) said it’s a good time to sell, a decrease of three percentage points from the month before. There was a corresponding three percentage increase in those who believe it’s a bad time to sell (39 percent to 42 percent).
Respondents were slightly more optimistic about home prices and mortgage rates going forward, but the vast majority still believe prices and rates will remain high.
Most industry forecasters believe mortgage rates will begin to decline as the year goes on.
U.S. News and World Report obtained a number of mortgage rate forecasts for 2023. The predictions for the average 30-year rate for the year ranged from 5.7 percent to 7.4 percent.
The publication said there’s “widespread belief” that the Federal Reserve will slow its pace of rate hikes as inflation becomes less of a concern. It also cited the selling off of mortgage-backed securities and Treasury bonds in 2022 to fight inflation as a cause of mortgage rate increases last year, an issue not expected to be repeated in 2023.
Fannie Mae has forecasted a 20 percent drop in purchase mortgage volume for 2023, from $1.66 trillion to $1.33 trillion. Purchase volume is expected to increase again in 2024, but at $1.53 trillion is expected to remain below last year’s level.
Single-family refinance originations are expected to fall nearly in half this year, from $686 billion in 2022 to $366 billion this year. Fannie expects refinance volumes to grow to $576 billion in 2024 to correspond with a gradual decline in mortgage rates.
National Association of Realtors Chief Economist Lawrence Yun predicts home sales will decline 6.8 percent in 2023.
Real estate brokerage firm Redfin previously forecasted about 16 percent fewer existing home sales in 2023 than 2022, landing at 4.3 million, which the company said would be the slowest housing-market year since 2011. People will only move if they need to, the company said.
Redfin also reported that homes are selling at the slowest pace since the beginning of the pandemic. Its data showed that the typical home that sold during the four weeks ending January 8 was on the market for 44 days, the longest timespan since April 2020. Pending home sales dropped 32 percent year over year to their lowest level on record and mortgage-purchase applications dropped to their lowest level since 2014.
Redfin pointed to a few reasons for optimism. Its Homebuyer Demand Index – a measure of tour requests and other buying services from Redfin agents – posted a 6 percent increase over the last month, and Google searches for “homes for sale” are on the rise.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
