How’s the housing economy? Higher interest rates and home prices on one side, and persistent demand stemming from demographic growth on the other, keeps buyer sentiment in a state of flux, says NAHB.
A majority of respondents in the Fannie Mae Home Purchase Sentiment Index (HPSI) survey believe it is a good time to sell a home. Forty percent of respondents believe home prices will go up in the next 12 months.
But 85% of the consumers surveyed say the current housing economy makes it is a bad time to buy a home. They cite high home prices and mortgage rates as the primary reasons. This sets a record high in negative consumer homebuying sentiment. NAHB reports the homeownership rate for households aged less than 35 decreased to 38.2% in the third quarter of 2023. Compared to the peak of 69.2% homeownership rates in 2004, overall homeownership rates today are 3.2 percentage points lower and below the 25-year average rate of 66.4%.
Good for Sellers, Bad for Buyers?
The bright light in the housing economy is that Interest in newly built homes is on the rise, largely due to financing incentives. Many homebuilders are offering to buy down the interest rate on the home loan or pay some or all closing costs.
Meanwhile, state housing finance agencies seek to meet the affordable housing needs of their residents, including first-time homebuyers, by providing down payment assistance programs. Freddie Mac’s newly launched DPA One® is an innovative new tool. It’s designed to make it easier for mortgage lenders to participate in the down payment assistance programs. DPA One aggregates and showcases down payment assistance programs in a single, standardized, insights-rich tool. Lenders can quickly and efficiently access and compare programs to help make home ownership possible for more families.
Is Interest Rate Relief on the Way?
Given cooling job growth and wage growth data, the bond market has seen a decline in interest rates, with the 10-year Treasury rate falling below 4.6% to a near two-month low. Economists say this is good news for interest rates. Employment data will be one of the key components in determining whether to hold the federal funds rate again at its December meeting.
The Mortgage Bankers Association (MBA) is predicting purchase originations to increase 11% next year. When adjustable-rate-mortgages recently experienced a decrease in rates, MBA showed an uptick in ARM applications. But MBA says it does not expect the Fed to hike interest rates further on 30-year mortgages this year. MBA analysts predict that the Fed will cut interest rates three times in 2024. Inflation may come down faster as a result.