Buying sentiment is up, but affordability remains a challenge in 2023

Buying sentiment among potential homebuyers improved slightly in December but is still well below pre-pandemic highs, according to new data from fanny mae. Ongoing affordability challenges are expected to limit buyer entry to the market in 2023, according to fanny maewhich will result in a continued decline in home sales in the coming months.

But despite the affordability hurdles, Fannie Mae’s Home Buying Sentiment Index (HPSI), which tracks the housing market and consumer confidence to sell or buy a home, rose 3.7 points to 61 in December due to that consumers reported expectations that mortgage rates and home prices may decline throughout the year, the agency said.

“However, the HPSI remains very low by historical standards, particularly the ‘good time to buy’ component, and respondents continue to cite high home prices and unfavorable mortgage rates as the main reasons for their pessimism” said Doug Duncan, senior vice president. and chief economist at Fannie Mae.

The December HPSI is slightly above the record low of 56.7 recorded in October 2022.

On the buyer side, 21% said it was a good time to buy, up from 16% in November. The majority of shoppers (about 76%) said it was a bad time to buy, down from 79% the previous month.

On the seller side, 51% said it was a good time to sell, up from 54% in November. Some 42% said it’s a bad time to sell, up from 39% in the previous month.

Consumers were not optimistic about mortgage rates. About 14% of those surveyed said that mortgage rates will go down in the next 12 months, while 51% said that mortgage rates will go up.

The agency expects the average 30-year fixed-rate mortgage rate in 2023 to rise to 6.3% from 5.3% last year, while the Mortgage Bankers Association (MBA) forecasts that rates will decline to 5.2% 6.6% in the same period.

In addition to high mortgage rates compared to two years ago, credit standards have also tightened, as indicated by the latest MBA Mortgage Availability Index. The MCAI, with a benchmark of 100, fell marginally 0.1% to 103.3 in December, led by a decline in both conventional and government MCAIs.

The pivot in the market led many lenders to exit certain origination channels to manage their operating costs or to stop lending altogether. This was a main factor in the decline in credit supply, the MBA noted.

Small declines in home rates and prices may not produce enough buying power for buyers, Fannie Mae said, adding that she expects affordability to remain the top challenge for potential homebuyers through 2023.

The MBA expects the median price for existing homes to fall to $371,400 in 2023 from $384,600 last year and the median price for new homes to fall to $440,100 from $452,900 in 2022.

“Existing homeowners may continue to wait to list their properties for sale, as many have already secured lower mortgage rates, creating minimal incentive to sell and buy again until rates become more favorable. We believe the resulting stress will contribute to a continued decline in home sales in the coming months,” Duncan said.

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