A record share of Americans are still unhappy with the housing market

Buying a home now is a terrible idea, a record share of Americans still think, and the expected decline in mortgage rates in the next year may not help as much as needed.

According to Fannie Mae’s latest housing sentiment survey, 85% of respondents in November said it’s a bad time to purchase — matching the survey high — due to slowing economic growth, high home prices, and elevated mortgage rates.

The share of respondents who believe it’s a good time to buy a home dropped 1 percentage point to 14% in November compared with the previous month, marking a survey low.

The downcast sentiment comes even as mortgage rates dropped by more than a half-point during November. But borrowing costs remain expensive, and coupled with home prices still making record highs, affordability continues to be a problem for buyers.

Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?

“Over the past year, the [Fannie Mae index] has plateaued at a low level, evidence of persistent consumer pessimism regarding the state of the housing market,” Doug Duncan, Fannie Mae’s chief economist, said in the release. “Looking back, consumer belief that it’s a ‘bad time to buy a home’ hit a survey high several times this year – including this month – and each time the pessimism could be attributed to high home prices and high mortgage rates.”

Affordability at 30-year lows

The index survey found that 41% said home prices will continue to grow in the next 12 months. Only 24% expect prices to go down. The remaining 35% expect prices to stay the same.

Further price increases would pose more challenges, especially because most people don’t believe their wages will climb in the same manner.

Fannie Mae’s survey showed that Americans are increasingly pessimistic about their wages, with only a net of 7% saying their household income is significantly higher in the last 12 months, a decrease of 3 percentage basis points compared to October.

“Consumers have expressed a reduced sense of financial security, with fewer respondents reporting household income growth over the year and a higher percentage saying their incomes remained the same,” Duncan said.

First American found that home prices rose 6.2% over the last 12 months in September while household income increased by only half of that at 3.1%

First American found that home prices rose 6.2% over the last 12 months in September while household income increased by only half of that at 3.1%. (Mike Kemp/In Pictures via Getty Images) (Mike Kemp via Getty Images)

That syncs with other data on home prices and income. First American, a title insurance company, found home prices rose 6.2% over the last 12 months in September while household income increased by only half of that at 3.1%.

“It was not enough to offset the affordability loss from higher rates and rising nominal prices,” Mark Fleming, chief economist at First American, wrote in a blog.

Housing data tracked by First American also showed that home affordability is at a three-decade low. Its real house price index, which measures US single-family home prices adjusted for consumer buying power, found that national prices increased by 15.2% annually in September. The hike can be attributed to mortgage rates and home prices outgrowing wages, reducing purchasing power.

Read more: How to buy a house in 2023

“[The mortgage rate] jump from 6.1% last September to 7.2% this September reduced house-buying power by nearly $38,000,” Fleming wrote. “Combined with the gains from household income, the net effect on house-buying power was a decline of approximately $28,000 compared with September 2022.”

Looking ahead

More Americans remained hopeful about the future direction of mortgage rates. The share of respondents who believe borrowing costs will retreat in the next 12 months increased to 22% in November from 16% the previous month, Fannie Mae found.

Experts also expect a retreat in rates. Both Redfin and First American forecast the 30-year mortgage rate hovering around 6.6% by the end of next year.

“The gradual decline in rates combined with the small dip in prices will bring homebuyers some much-needed relief,” Daryl Fairweather, Redfin’s chief economist, wrote. Redfin is forecasting a 1% drop in the second and third quarters of next year.

But, a pullback in rates may not overcome the persistent lack of housing inventory.

“Even if mortgage rates decline over the next year, which we currently expect, it’s unlikely to meaningfully affect affordability,” Duncan said. “The lack of housing inventory is likely to remain a challenge for some time, and home purchase sentiment may continue to be suppressed as a result.”

“As our forecast indicates, we believe it will be a couple of years before home sales return to more normal, pre-pandemic levels,” he added.

Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

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