Fannie Mae’s Consumer Home Purchase Sentiment Index continued to rise in October.
By Manuel Gutierrez, Consulting Economist to NKBA
The most recent Home Purchase Sentiment Index generated by the Federal National Mortgage Association, or Fannie Mae, which gauges consumer views related to home purchasing and the current economic environment, revealed the index rising for a third consecutive month, edging up by 0.7 to 81.7. Except for a brief hiccup in July, the index has been steadily rising since its dramatic plunge in March-April at the start of the pandemic.
The index is not meaningful by itself, but becomes valuable when compared with previous indices for trending.
The latest survey was for October.
Although the index is currently above its long-term value of 80, illustrated by the dashed line in the chart above, it is still below pre-pandemic levels. Additionally, given the continuous threat of a resurgence of the virus, it may take some time for the index to return to the positive trend it had maintained since its inception. The chart below captures that rising trend between 2012 and the beginning of this year, when the index fell precipitously due to the aforementioned reasons. In fact, in January the index reached its highest level since 2012 (93), while April saw its lowest point (63).
For each of the survey questions, such as, “Is this a good or a bad time to buy a house,” Fannie Mae calculates a net value, which is the arithmetic difference between those who say it’s a good time minus those who say it’s a bad time. These values are shown in the chart below for each of the six index components. Three of them rose in October, as illustrated by the black lines (“Good time to buy,” “Good time to sell” and “Mortgage rates down”), while three declined, preventing a greater overall index improvement.
Also, two index components are job-related and of great importance to consumers. One tracks consumer worries about losing their current job. At the beginning of the year, more than 70% had no concern about losing their job. This dropped to under 50% at the start of the pandemic, but has since recovered to about 60% in the latest survey.
Similarly, earlier this year, roughly one in five consumers stated that their income was higher than the year before. This dropped to just one in 20 who said so in October.
The charts below deal with consumer sentiment on the state of the economy and whether or not it is on the right track. Although part of the same survey, this question is not used to calculate the index as are the previous six.
Through 2016, less than 40% of consumers felt the economy was on the right track. This opinion improved to an average of 50% since 2017 and reached a high of 60% at the end of last year. Since the pandemic hit, the percentage who feel the economy is on the right track has fallen to an average of around 35%, bottoming below 30 in April/May, and settling at 39 for October.
