Homebuyer Confidence Rises – Is The Housing Market Rebounding?

Fed has indicated Slow rate hikes are on the way December data suggests inflation is easing, and may even level off if rates reach more than 5%. Meanwhile, many markets are already moving into the hands of buyers. Sellers are offering more discountsAnd this Case-Shiller Index Shows a month-on-month decline in home prices, although they are still higher than a year ago. More potential homebuyers are betting that the affordability gap will narrow as a result of these changes. But if their optimism turns into an increase in demand, it could cause prices to rise again.

More respondents believe it’s a good time to buy

When home buying sentiment was at its lowest, only 16% of respondents believed it was a good time to buy a home. But in December of 2022, 21% of respondents said it is a good time to buy real estate. Meanwhile, the share of respondents who said it was a bad time to buy fell from 79% in December to 76%.

redfin reports There are early signs of improving home buying sentiment — both home tour requests and mortgage purchase applications have increased since October. Falling mortgage rates have lowered the typical homebuyer’s mortgage rate by about $300, making homebuying again possible for more families. But the pick-up in demand has not yet resulted in higher pending home sales.

Does the rising Home Purchase Sentiment Index reflect market conditions, or are homebuyers relieved that mortgage payments have become more affordable? The availability of an affordable mortgage payment does not indicate a wise time to invest. It is usually best to invest when there is plenty of inventory and home prices are at their lowest. If you can capture the low mortgage rates together, then you’re icing on the cake. But of course, lower mortgage rates can increase demand for homes, which can drive up prices. Similarly, if most homeowners believe that prices have bottomed out and decide it is a good time to enter the market, this could cause prices to increase.

Analysts at top firms agree House prices are still headed for a decline In many markets, however, if home buying confidence rises, demand can act as a base for a fall in prices or even lead to a rise in prices. Meanwhile, most economists Don’t expect the Fed to cut rates until the end of 2023, so mortgage affordability is still an issue for potential homebuyers.

The best time to buy may be in the future – but whether potential homebuyers should wait is highly location-dependent. For example, Redfin Economics Research Lead Chen Zhao They say Prices in some cities like San Francisco and Austin have already dropped from a year ago. Now may be the right time to act in these markets as the prices may change if the demand increases.

Fewer respondents believe it’s a good time to sell

Changes in a buyer’s market are also reflected in seller’s sentiment. 51% of homeowners now think it’s a good time to sell, down from 54% in November of 2022. In contrast, in December of 2021, 76% Respondents said it was a good time to sell – what a difference a year can make. The share of homeowners who said it was a bad time to sell also increased from 39% in November to 42% in December.

Most sellers probably wish they could time-travel to a time when mortgage rates were low and demand was sky-high. At that point, sellers can expect multiple over-ask offers. Now, many sellers are offering homes for purchase at mortgage-rate or even undercutting their listing prices. stay in the market longer, This is not an ideal time to relocate, especially when home sellers face higher mortgage rates on a new property. But sellers who can wait to sell can look forward to a projected recovery in 2024 or 2025 with more affordable rates.

More respondents expect mortgage rates and home prices to fall

While the percentage of respondents who said house prices over the next 12 months would remain unchanged from November at 30%, 37% of respondents now expect prices to go down, an increase from 34% in November. Meanwhile, 29% of respondents expected prices to remain below 30% in November. The divide in consumer expectations may be partly due to differences in house price forecasts for different markets.

The share of respondents who expected mortgage rates to decrease over the next 12 months increased from 10% to 14%, while the percentage of respondents who believed mortgage rates would rise further decreased from 62% to 51%. 31% of respondents expect mortgage rates to remain the same next year. Many economists are also divided in this matter. For example, morning Star The Fed is expected to cut the federal funds rate in 2023, which will lead to a decline in mortgage rates. but Goldman Sachs Predicts there will be no rate cut until 2024.

increasing job confidence

the civilian unemployment rate was 3.5% in DecemberA slight decrease from 3.7% in November. job benefits were significant in hospitality and healthcare, while industries that declined showed only minor changes. Consumer sentiment reflects a strong job market. The Home Purchase Sentiment Index shows 82% of respondents are not worried about job losses, up from 78% in November, while the share concerned about unemployment fell from 21% to 17%. Nevertheless, many economists believe that there is cause for concern That the unemployment rate will increase further.

why does it matter

The Fannie Mae Home Purchase Sentiment Index rose just 3.7 points in December, and at 61, it’s only slightly above its all-time low. Consumers do not favor homebuying as much as they did during the first half of 2022. Even so, even a slight reversal in sentiment can be an early sign of improvement. For example, there was a slight increase in the Home Purchase Sentiment Index May of 2020One month ago Existing Home Sales started turning.

Recovery means trouble for homebuyers

If potential buyers who had earlier decided to wait are now more confident, it could mean a slight recovery in demand. An increasing number of potential homebuyers will mean renewed competition for the supply of available homes. If homebuyer sentiment rises high enough, the bidding wars that have become common during the pandemic could return, making prices out of reach for buyers at a time when mortgage rates remain relatively high.

Still, the outlook for the housing market remains unpredictable. Investors are getting more hopeful Fed may achieve soft landing, But if unemployment rises and consumer spending retreats, it’s still possible the US could slip into a recession. In fact, economists are now projecting a 70% chance of a recession in 2023, higher than in previous months. bloomberg poll,

That uncertainty could divide potential homebuyers. Some may return to the market as mortgage rates become more affordable, while others may be more cautious, anticipating future price declines. Where the majority falls may partly determine the future direction of housing prices.

To be uniquely aware that a market has bottomed out would be the ideal situation for an individual homebuyer. That person can buy without competition and capture the lowest price. The problem is that most market indicators accessible to an individual homebuyer are also available to everyone else.

It is important for investors to make use of as much data as possible to stay ahead of the curve. If you can beat the trend and buy just before the purchases become popular again, you can reap the rewards. The Home Purchase Sentiment Index is only a measure of demand, and so far, its growth has not influenced sales activity. But as an early indicator, it is important to heed, especially in markets that have cooled the most.

Note by BigPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.