Amid a record low supply of homes for sale and prices rising at the fastest pace in almost two decades, home buyers are becoming increasingly pessimistic about the housing market.
That’s according to Fannie Mae’s latest Home Purchase Sentiment Index, which has just fallen to the lowest ever point in the ten years it has existed.
The HSPI summarizes data from the National Housing Survey on consumers, conditions, attitudes, and intentions about housing. The index shows promise both as a stand-alone indicator and as a supplement for evaluating and forecasting housing and mortgage markets.
CNBC reported Friday that the percentage of respondents who said they believe now is a good time to buy a home has fallen from 53% to 47%, while those who say now is a bad time to buy has risen from 40% to 48%.
Those who responded to the monthly survey cited the tight supply of homes for sale and soaring prices as the main reasons for their pessimism, Fannie Mae’s senior vice president and chief economist Dough Duncan told CNBC. He said the decrease in homebuying sentiment is likely because some buyers, albeit flush with savings, might be “attempting, but failing, to buy a home due to heightened competition for relatively few listed homes.”
The most pessimistic respondents in the survey were those with incomes of between $50,000 and $100,000. The problem is that the shortage of homes for sale is most visible at the lower end of the market, which means affordable homes are especially difficult to find.
The situation is unlikely to change any time soon. Data from Redfin shows that competition for the few homes that are listed for sale is hitting record highs. It said it took an average of just 19 days to sell a home over a four week period ending May 2, the fastest sales time recorded since Redfin began tracking such data in 2012. One year ago, homes took an average of 35 days to sell. Redfin also revealed that around 45% of homes sold last month went under contract in less than a week.
Homes are selling for more too. The Redfin data shows that 48% of homes sold during that period did so for more than their list price, up 20% from a year ago. Meanwhile, home prices in general are up 11% from a year ago, driven by high competition and bidding wars. Prices of newly built homes are also rising due to the high costs of building materials.
Daryl Fairweather, chief economist at Redfin, told CNBC the home price increases could be a precursor to more widespread inflation throughout the U.S. economy. “Lumber prices are surging, which has driven up prices of new homes and indirectly drives up prices of existing homes,” she said.
However, Fairweather said that as states begin removing COVID-19 pandemic-related restrictions, we might see price increases in other sectors such as gasoline and food. If that happens, it could cut into people’s budgets and ease competition for housing, he said.
“A more balanced market could encourage more move-up homeowners to finally sell, because they won’t be so fearful about being able to find and compete for a home to buy,” she explained.