Key Takeaways:
- The 3.9 point fall over previous month puts it at third-lowest level in past year.
- 66% now say it’s a bad time to buy a home while 28% say it’s a good time.
- Only once before in past two years has the “good time to buy” index slipped even marginally below 50, so the 28% figure is unusually low.
By Manuel Gutierrez, Consulting Economist to NKBA
The consumer view on housing took a hit in July, impacted by factors both inside and outside the industry. Generally, fears regarding the resurgence of COVID-19 due to the Delta variant, combined with price inflation of 5.4% for the month, have affected consumer confidence. Within the industry, rising home prices and the continual shortage of houses for sale have also contributed to an increasingly pessimistic outlook.
As a result, the Home Purchase Index (HPI) (Figure 1), based on a monthly survey conducted by Fannie Mae, fell by 3.9 points for the month. Over the past year, only twice has that reading been lower: in July and December 2020. In the 13 months since July 2020, the index has remained within a tight range between 74 and 82, averaging 78.4 over this period. That range is well below the 2019 average, when the sentiment hovered around 90.
The HPI is calculated from consumer responses to a number of factors related to views on housing, as well personal economic situations and prospects. For at least the last two months, consumers have registered greater pessimism for both.
For instance, until this past April, consumers generally thought it was a good time to purchase a house (Figure 2). At times, nearly twice as many indicated it was a good time rather than a bad time to buy.
Those views dramatically have reversed since April, and especially over the last two months. In the latest survey, two-thirds believe it is now a bad time to purchase a home.
The consumer sentiment index measuring whether it’s a ‘good time to buy’ a home plunged to 28% in July — by far the lowest over the past two years.
The percentage of consumers who thought it was a good time to buy a house has mostly remained above 50% since the survey was initiated. Only once prior to the previous drop had the number fallen below 50%. That was in April 2020.
The drop to 28% in July is extremely unusual and reveals a pessimism currently prevalent among consumers.
Figure 3 shows the net difference for two related questions for each topic. The survey asks consumers complementary questions such as, “Is it a good or a bad time to buy a house?” The net differences capture the sentiment and direction of consumers’ views for each topic.
Both the “time to buy” and “time to sell” sentiments fell in July, which is unusual, since when conditions are good for home sellers, they should logically be bad for home buyers.
Most of the survey questions designed to calculate the index fell in July. For several of them, July was a continuation of a pattern that had begun several months earlier. An exception is regarding views on the direction of house prices. In July, slightly fewer consumers believed prices will go up. The net difference is currently 25%, down from 36% in April.
The questions on personal finances as they relate to concerns about job and income stability turned more pessimistic in July.
