Consumers and business owners continued to grow more pessimistic about the economic outlook, despite encouraging news on inflation dropping to its lowest level in nearly two years, according to a recent California Association of Realtors (CAR) report.
The government’s current battle over the debt ceiling, recent bank failures, a fear of recession, and stubborn inflation still continue to affect the public sentiment, the report stated.
A healthy labor market has continued to support California households’ finances and helped mortgage delinquencies drop to the second lowest level since 1979, but the high costs of borrowing and affordability constraints continue to chill the overall homebuying sentiment as well, said the CAR report.
At the same time, however, home purchase sentiment improves as consumers’ optimism on mortgage rates seems to have stabilized.
The Fannie Mae Home Purchase Sentiment Index®(HPSI) increased in April to its highest level since May 2022, jumping 5.5 points to 66.8, according to a May 8 report.
All six of the HPSI’s components increased month over month, most notably the component associated with consumers’ expectations of mortgage rates. While the component remains negative on net – meaning more respondents than not expect mortgage rates to go up over the next year – in April, 22% of consumers indicated that they expect mortgage rates to go down, compared to only 12% last month.
Affordability constraints continue to hinder overall homebuying sentiment, said the Fannie Mae report, with only 23% of respondents indicating it’s a good time to buy a home, although a plurality once again believe that home prices will increase over the next 12 months. Year over year, the full index is down 1.7 points.
“This month’s increase in the HPSI was the largest in over two years, primarily driven by consumers’ more optimistic mortgage rate expectations,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
“An increased number of respondents indicated they think mortgage rates will go down over the next year, a belief that could be due to a combination of factors,” he continued, “including an awareness of decelerating inflation, market suggestions that monetary conditions will ease in the not-too-distant future, and, of course, actual mortgage rate declines during the month.”
And, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 3.56% of all loans outstanding at the end of Q1-2023.
The number represents the lowest level for any Q1 since the MBA’s survey began tracking delinquency rates in 1979 and the second all-time lowest, just 11 basis points (bps) above Q3-2022. The delinquency rate decreased 40 bps from Q4-2022 and 55 bps from one year ago.
According to the CAR report, the year-over-year improvement was broad based across all product types – FHA, VA and conventional – and across all states.
The performance of existing mortgages is exceeding expectations but mortgage delinquencies typically track closely with unemployment, and the job market is currently displaying remarkable resiliency, said CAR.
