Subpar sellers market darkens housing sentiment in February

After three months of improved consumer sentiment regarding housing, the mood soured in February, with recent economic trends leaving sellers particularly hesitant in the current environment, according to Fannie Mae. 

Researchers at the government-sponsored enterprise reported its Home Purchase Sentiment Index decreased 5.8% to a reading of 58 in February, breaking a three-month-long streak of upward moves. In January, Fannie Mae's HPSI came in 3.6 points higher at 61.6. The index assesses the market based on both buy- and sell-side opinions.

"The decline was partly driven by a substantial decrease in consumers' sense of home-selling conditions, with most respondents who indicated it's a 'bad time to sell' citing unfavorable economic conditions and mortgage rates as the primary reasons for that belief," said Fannie Mae Chief Economist Doug Duncan in a press release. 

February's decline brought the HPSI back closer to an all-time survey low reported last October, when it hit 56.7 on a 100-point scale. Last month's index also represents a substantial 23% year-over-year slide from a score of 75.3% in February 2022. 

Even though the net percentage who indicated it was a good time to buy edged upward between January and February, that increase was more than offset by the drop among consumers citing poor selling conditions, Fannie Mae reported. 

Consumers who saw favorable buying conditions increased from 17% to 20%, while the share who considered February a bad time to buy fell from 82% to 79%. 

But at the same time, the surveyed consumers who said it was a good time to sell dived from 59% to 54%, and the share who judged it bad surged to 44% from 39% in January.

"With home-selling sentiment now lower than it was pre-pandemic –— and homebuying sentiment remaining near its all-time low –— consumers on both sides of the transaction appear to be feeling cautious about the housing market," Duncan said. 

In a sign of rising economic anxiety, consumers concerned about potentially losing their job in the next year spiked to its highest share in the past 12 months to 24%, compared to 18% in January, contributing to more negative home-purchase sentiment. Meanwhile the share who reported not being worried about loss of employment fell to 73% from 82%, leading to an overall net 15 percentage-point surge in job-security concerns.

The greater unease consumers face regarding employment is a situation Fannie Mae plans to eye closely, "since labor market uncertainty could play yet another factor in slowing housing activity," Duncan said.

A mortgage rate surge of more than 50 points throughout February likely played no small part in February's HPSI downturn as well, with the most recent 30-year benchmark average now at its highest since November. But falling buyer demand has so far had seemingly little effect on bringing prices down to a level affordable enough to spur business, with real estate brokerages reporting a scarce number of new homes being listed.  

The net share of consumers changing their minds about the upcoming direction of home prices over the next several months moved little as well, according to Fannie Mae. While the share who think housing costs will decrease went up between January and February from 35% to 37%, the portion predicting an uptick headed upward by a similar percentage from 30% to 32%. 

New data released by CoreLogic this week point to the degree of sluggishness and question marks surrounding the housing market. The pace of home price growth declined further to 5.5% on an annual basis in January from 19.1% a year earlier, the ninth straight month of slowing, the data and analytics software provider said. But month over month, housing costs came in flat, edging down just 0.2% from December. 

"While 2023 kicked off on a more optimistic note for the U.S. housing market, recent mortgage rate volatility highlights how much uncertainty remains," CoreLogic Chief Economist Selma Hepp said. 

"Nevertheless, the continued shortage of for-sale homes is likely to keep price declines modest, which are projected to top out at 3% peak to trough," she said.

The higher rate of price slowdowns was concentrated in the Northwest, CoreLogic found. Idaho, Washington and Montana were the only three states to post annual decreases in home prices, with drops of 2.3%, 2.2% and 0.6%, respectively. Florida, Maine and South Carolina reported the highest appreciation in values at 13.4%, 11.5% and 10.7%.

But until it finds consumer worries easing, Fannie Mae forecasts negative housing trends to stick on a national basis for the foreseeable future, Duncan said. 

"We believe these results corroborate our expectation for subdued home sales in the coming quarters, particularly now that mortgage rates have begun rising again."