October Survey Reveals Consumers are More Optimistic About Housing's Future
Improving consumer attitudes are driving a more positive fourth-quarter outlook for the national housing market.
Fannie Mae's October National Housing Survey revealed the economy's steady but unspectacular growth has continued to create a dynamic favoring sellers, whose property values have appreciated but are not likely to accrue significantly greater value anytime soon. Prospective buyers, on the other hand, are faced with limited inventory in many areas but are steadily gaining confidence from an improving job market and gradual average wage gains. The government-sponsored enterprise's survey revealed the share of consumer respondents who expect their financial situations to improve over the next 12 months increased, while the number of people who feel it's a good time to sell a home surged upward.
As a Mortgage News Daily report noted, there was a downward shift in the the number of respondents who felt it was a good time to buy a house in October, perhaps as a result of the Federal Reserve concluding its bond-buying program. Sixty-five percent of Fannie Mae survey participants still feel it's a favorable buyers market, down from 68 percent in September. And while the former figure still represents a healthy segment of the consumer population, the month-over-month decrease may be a harbinger of perceptions to come. As the Fed inches closer to eventually adjusting the key funds rate - potentially as soon as the second quarter of 2015 - mortgage interest rates are expected to rise. That will likely compromise buyer affordability in the broad sense, as many market participants have snatched up historically low borrowing costs in 2014. Even if, as many analysts have predicted, the average 30-year fixed-rate mortgage climbs only to 4.5 percent by mid-2015, it's reasonable to expect more returns like those seen in Fannie's October survey going forward. In other words, there's a sense that buyers should move sooner rather than later so they can optimize their investment.
Appreciation rates subsiding
On the other hand, fewer survey respondents reported an expectation for home prices to rise over the coming 12 months, with 44 percent of participants expressing that sentiment. And though only 7 percent of respondents anticipate home values will decline nationally, prospective buyers worried about rising rates may find some relief in the fact that appreciation rates seem to have plateaued during the second half of 2014.
"Consumers are growing more optimistic about the housing market in the face of broader improvement in economic sentiment," said Doug Duncan, Fannie's senior vice president and chief economist. "The share of consumers who expect their personal finances to get better is near its highest level since the survey's inception, while those expecting their finances to get worse reached a survey low. Home price expectations rose significantly this month, largely reversing the dip witnessed over the past four months, and the share of consumers who think it's a good time to sell a home reached another survey high."
Duncan also noted a more stable balance between buyers' and sellers' attitudes, which could portend healthier rates of home sales activity in 2015. Sales figures have been uneven for much of the past year, thanks to demand levels exceeding supply in a lot of local markets. That has encouraged the exaggerated appreciation seen in places such as the Bay Area, Boston, New York and Seattle, and - along with tight standards for mortgage credit approval - served to box out a number of would-be buyers.
"The narrowing gap between home buying and home selling sentiment may foreshadow increased housing inventory levels and a better balance of housing supply and demand," Duncan said. "These results may help drive a healthier housing market in 2015."
What about sales rates?
As far as the economy's trajectory on a macro level, consumer opinions remain mixed. The central bank's continued moves toward scaling back stimulus have been based on progress toward stated employment and inflation goals, so there's an impression things have improved since the beginning of the year. Yet some of the public remains skeptical, it seems, as the number of respondents expressing a belief the economy is on the right track remained at 40 percent - unchanged from September.
The latest data from the Mortgage Bankers Association, meanwhile, stated new home purchase applications increased in October, up an eye-opening 8 percent from September. A third-quarter report from the trade group also revealed mortgage delinquencies were down and home retention rates generally continued to improve. Both reports indicate consumers are better managing their household finances and gaining renewed confidence from the macroeconomic momentum.
MBA President Mike Fratantoni surmised the increased application volume was in part due to three consecutive strong jobs reports. More than 200,000 jobs were added by nonfarm payroll employers each month in August, September and October, bringing the national unemployment rate to 5.8 percent.