The latest Home Purchase Sentiment Index® (HPSI) decreased 2.0 points in July to 62.8, bringing consumer confidence to its lowest level since 2011. 

But are consumers really losing confidence in the housing market? Let’s break it down.

July 2022 Home Purchase Sentiment Index

At 62.8, the July 2022 HPSI is 21 points lower than July 2021, and well off the high score of 93.8, which occurred in August 2019.

Home-Purchase-Sentiment-Index-image

Doug Duncan, Fannie Mae Senior Vice President and Chief Economist, stated rising mortgage rates, which have taken a toll on housing affordability, are the most significant factor in the HPSI decline this year.

Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home….With home price growth slowing, and projected to slow further, we believe consumer reaction to current housing conditions is likely to be increasingly mixed: Some homeowners may opt to list their homes sooner to take advantage of perceived high prices, while some potential homebuyers may choose to postpone their purchase decision believing that home prices may drop. Overall, this month’s HPSI results appear to confirm our forecast for moderating home sales over the coming year.

Doug Duncan

Fannie Mae Senior Vice President and Chief Economist

Components of the HPSI

The HPSI is made up of six main components: Buying Conditions, Selling Conditions, Home Price Outlook, Mortgage Rate Outlook, Job Loss Concern, and Change in Household Income.

Components-of-the-HPSI-chart

The most recent report shows that 76% of consumers say that now is a bad time to buy, while 67% believe that it is a good time to sell. These beliefs fall in line with the cooling housing markets across the country.  

Consumers also believe home prices will continue to increase—by 1.9% over the next 12 months. They expect rents to increase 7.6% in the same time period.

Only 6% think the mortgage rates will go down, while 67% believe rates will increase. 

As far as employment, 22% are concerned about losing their job in the next 12 months, with 78% confident in their career. And 24% of respondents said their income significantly increased over the last 12 months, with only 13% saying they are making less.

Consumer Confidence

Some may think the relatively high confidence in employment and incomes, as well as a belief that home prices and rents will continue to increase, should lead a consumer to believe that now is a good time to buy. 

But consumers are likely not comparing current market conditions to the future of higher incomes and increased home prices. Instead, they are looking back at “what was,” longing for the low-prices, low-rate seller’s market of 2018 and 2019. 

If the market follows suit with the consumer confidence numbers, we will likely see a continued low Home Purchase Sentiment Index® for the next year or longer. How can you use this data to educate your clients?