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July 15, 2021

Will Home Buyers Give Up on a New Home?

Home purchase sentiment falls again, leading some to wonder if home buyers will just give up on purchasing a least for now.

Fannie Mae’s most recent Home Purchase Sentiment Index (HPSI) came out recently, showing that the index fell in June by 0.3 points to 79.7. The HPSI is up 3.2 points compared to the same time last year. Bottom line, consumers still feel that this is a seller’s market

According to Fannie’s latest data, 64 percent of respondents said it’s a bad time to buy a home, up from 56 percent last month. On the other hand, 77 percent of respondents said it’s a good time to sell, up from 67 percent last month. As a result, the net share of those who say it is a good time to buy decreased 11 percentage points month over month. 

Here is what Fannie Mae senior vice president and chief economist Doug Duncan had this to say about the recent data: 

“The HPSI remained flat this month, although its underlying buy and sell components continued to diverge, setting record positive and negative readings, respectively. 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. 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. 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.” 

Duncan went on to say that despite the data, Fannie Mae expects demand for housing to persist at an elevated level through the rest of the year. 

High home prices is definitely one reason home buyers are holding back, but there are two more reasons this data doesn’t surprise me. 

What could make home buyers give up 

In addition to high home prices, there is an inventory problem, especially at the low end of the market, and the beginning of an interest rate problem. 

I’ve talked about the lack of homes for first-time home buyers a number of times on this blog, but the problem persists. The buyers that are in the market for a home today can’t afford the inventory that's out there, because the inventory that's out there is not made up of starter homes. There doesn’t seem to be any end to the inventory issue, at least not a good one. 

It is possible that as the pandemic subsides we’ll see a certain percentage of homeowners who have been in forbearance who find it difficult or impossible to get back on track and who will therefore lose their homes to foreclosure. Those homes will go back into the market as REO and may ease the inventory problem somewhat, though that would be an unfortunate solution. 

As for affordability, there are many factors that determine how much home a borrower feels they can afford. Pricing is a fact, of course, but so is monthly payment. That, to a large degree, is based on the interest rate. We are finally seeing interest rates rise somewhat and that factors into home buyer sentiment. 

The other factor that we should not ignore, especially for the largest cohort of new home buyers in the market today, is student loan debt. Many young people are currently paying off tens of thousands in college debt and it’s working against them as they go to market for a new home. Will the government do anything about this? Only time will tell. 

What this all means for mortgage lenders 

The bottom line for lenders is that there is only so much business to go around and it looks like that business is going to be falling off soon. Consumers already see it coming and Fannie Mae’s HPSI puts the writing up on the wall for all to see. 

As loan volumes fall, the lending environment will become much more competitive and leading lenders, who invest in the right technology and who understand how to use it to better serve their borrowers, will take the business.

By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence

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