Booming home price growth and dwindling inventory has negatively impacted buyer sentiment, according to Fannie Mae’s latest Home Purchase Sentiment Index.

Skyrocketing home prices, scant inventory and bidding wars have taken their toll on homebuyer sentiment, according to Fannie Mae’s June Home Purchase Sentiment Index (HPSI) published on Wednesday. Although the HPSI remained flat at 79.7, the percentage of respondents who said it’s a “bad time” to buy increased 8 percent month over month to 64 percent.

Unsurprisingly, the percentage of Americans who said it’s a “good time” to sell increased from 67 percent in May to 77 percent as median home prices increased a record 23.6 percent.

Doug Duncan | Photo credit: Fannie Mae

“The HPSI remained flat this month, although its underlying buy and sell components continued to diverge, setting record positive and negative readings, respectively,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a prepared statement. “Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward homebuying and home-selling conditions.”

The worries about homebuying are linked to buyers’ assessment of where the market will go in the next 12 months, with 48 percent (+1 percent m-o-m) of respondents expecting home prices to continue their historic ascent. Twenty-one percent said prices will decline (+4 percent m-o-m), while a fourth expect prices to rise at the same rate (-4 percent m-o-m).

Along with price increases, a growing number of respondents expect mortgage rates to creep back up in 2022 (49 percent to 57 percent), compounding the price crunch with an increased borrowing cost. Meanwhile, 36 percent of respondents expect rates to decrease (6 percent) or remain flat (30 percent) over the next 12 months.

Duncan said first-time homebuyers and aspiring homebuyers have the worst outlook on homebuying, as they face greater challenges than experienced buyers.  “While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners,” he explained. “It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments who have already established homeownership.”

Although sentiments about home price and mortgage rate growth have soured, Duncan said survey responses regarding the jobs market and household income hold hope for future HPSI reports. Eighty-eight percent of respondents said they’re not worried about losing their job within the next 12 months, and 56 percent said their household income has remained steady despite market volatility.

“Despite the pessimism in homebuying conditions, we expect demand for housing to persist at an elevated level through the rest of the year,” he said. “Mortgage rates remain not too far from their historical lows, and consumers are expressing even greater confidence about their household income and job situation compared to this time last year, when the pandemic had shut down wide swaths of the economy.”

Email Marian McPherson

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