Consumer confidence could slowly be rising again, and home purchasing attitudes, while fickle, could improve again, according to a recent report from The California Association of Realtors (CAR).
But Fannie Mae sees a more ‘subdued’ attitude.
And, while affordability in California dipped in the fourth quarter of 2022, home prices could also drop further in the first quarter of this year while mortgage rates appear to be leveling off, according to the CAR report.
Together, these factors could mean housing affordability could improve in the first half of 2023, according to CAR..
On the other hand however, although the quarterly median home price dropped for the first time in eleven years, affordability slipped from the previous quarter to end the year near the lowest in 15 years. This means that only 17% of households in California could afford to purchase the $790,020 median-priced home in the fourth quarter of 2022.
At that price, said the CAR, a minimum annual income of $201,200 was required to make the monthly payment of $5,030, including principal, interest, taxes, and insurance (PITI) on a 30-year fixed-rate mortgage at 6.80%.
According to the CAR report, this was the first time in California history that the PITI on a typical home surpassed $5,000 and the minimum annual income required to buy a home, exceeded $200,000.
Thus with near record affordability lows, consumers have not been as optimistic about the housing market as in previous years.
Actually, despite a slight rise for the third consecutive month in January, Fannie Mae’s Home Purchase Sentiment Index® (HPSI) remains well below the numbers just before the pandemic.
The Fannie Mae (FNMA/OTCQB) Home Purchase Sentiment Index®(HPSI) increased for the third consecutive month in January but still remains well below its pre-pandemic highs.
Overall, the HPSI rose 0.6 points to 61.6, with three of the index’s six components increasing month over month, including those associated with home-selling conditions, home price outlook, and household income. Only 17% of respondents believe it’s a good time to buy, likely owing to the ongoing affordability challenges posed by elevated mortgage rates and home prices. Year over year, the full index is down 10.2 points.
“January’s HPSI results showed that consumer sentiment toward the housing market remains subdued by historical standards,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
“For consumers, the same affordability issues are persisting, as they continue to indicate that high home prices and high mortgage rates make it a ‘bad time to buy’ a home. The latest survey data also indicated that the majority of consumers expect home prices to decrease or remain flat over the next year, which may incentivize some potential homebuyers to delay their purchase decision.
“Although ‘good time to sell’ sentiment ticked upward this month,” he continued, “It’s still much lower than it was a year ago, as purchase affordability remains seriously constrained and mortgage demand has receded. Until we see improvements in affordability via lower home prices and mortgage rates, we expect home sales to remain muted in the coming months.”
