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According to the recently released Home Purchase Sentiment Index (HPSI) from Fannie Mae, more Americans expect home prices to rise. However, that expectation is likely blurred by the charged atmosphere of the 2016 election, which resulted in opposing attitudes toward the housing market. The amount of Americans who said home prices will rise increased four points to 35 percent in November – a reversal of trend. The HPSI overall decreased 0.5 points to 81.2 percent last month, a half-point higher than its reading the same time last year.
“The November Home Purchase Sentiment Index outcome is difficult to interpret, as the data collection period occurred across the Presidential election timeline,” says Doug Duncan, senior vice president and chief economist at Fannie Mae. “The results are fairly evenly split between responses collected before and after the election, and there is evidence of an increase in consumer optimism in the immediate aftermath of the election. However, we caution readers against drawing conclusions about sustainable changes in consumer sentiment so soon after the election.”
The number of Americans who felt it is “a good time to buy a house” decreased 1 point to 30 percent. Those who said it is a good time to sell, however, decreased six points to 13 percent. Finally, the number who said it is a bad time to sell increased two points to 38 percent – indicators of an upcoming swing to a buyer’s market.
When it comes to the number of Americans who felt mortgage rates will go down, that number decreased six points to -51 percent. Mortgage rates shot up over 4 percent in the wake of the election – the first time rates were above 4 percent since 2015 – and have continued to rise every week since.
“Low mortgage rates have been the primary driver of positive attitudes toward the home-buying and -selling climate throughout the recovery,” says Duncan. “However, if mortgage rates continue their recent rise, we may see a dampening in home purchase attitudes. There are clear predecessors for rapid market changes that ultimately dissipated, which urges caution in the interpretation of stability in short-term rate changes. Most recently was the very temporary market reaction to the Brexit and, earlier, the ‘Taper Tantrum,’ and in both instances the rate regime returned to roughly its prior position. The drivers are somewhat different in this instance but nonetheless suggest modesty in drawing near-term conclusions.”
2017 House Market Forecast
Nationally, housing prices are expected to slow next year. Analysts predict a deceleration rate between 3.9 and 4.9 percent.
“We do not see in the November HPSI results a fundamental departure from a flattening of housing activity relative to prior periods,” confirms Duncan. “This is consistent with our corporate forecast of a modest growth in the 12 months ahead.”