Why Americans are determined to purchase, despite rising prices

by Kerrie Kennedy

American homebuyers think now is a good time to buy, as they expect home prices to rise even further in 2020. That’s according to the recently released Fannie Mae Home Purchase Sentiment Index, which showed that the percentage of Americans who believe that home prices will go up over the next 12 months rose from 44 percent in November 2019 to 50 percent in December. Year-over-year, the HPSI was up 8.2 points in December.

In addition, the majority of survey respondents – 59 percent – said that now is a good time to buy. While high home prices and lack of inventory held many potential buyers back in 2019, a variety of factors have contributed to the realization that this could be the time to pull the trigger.

  • A potential increase in borrowing costs on the horizon. Most Americans don’t expect mortgage rates to go down any further than they are now. According to the HPSI, only 7 percent think they will decrease over the next 12 months
  • Job stability. A whopping 85 percent of Americans polled said they were not concerned about losing their jobs in 2020; only 12 percent said they were concerned about their employment
  • Stable household income. While the majority of Americans – 60 percent – characterized their household income as “flat,” only 11 percent said it was significantly lower compared to 12 months ago.

The results are right in line with Fannie Mae’s previous data and predictions for the coming year. “The continued strength in the HPSI attests to the intention among consumers to purchase homes. This is consistent with the Fannie Mae forecast for 2020,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The HPSI hit and remained near an all-time high in 2019, driven by the 16-percentage point year-over-year increase in the share of consumers believing it is a good time to buy. The HPSI’s strength supports our prediction of a healthy housing market in 2020, as well as consumers’ appetite and ability to absorb the expected increase in entry-level inventory.”’

Another report gauging consumer sentiment – The Conference Board Consumer Index – suggested that many consumers see the economy as somewhat separate from their own individual outlook and have adjusted their expectations accordingly.

“Consumer confidence declined marginally in December, following a slight improvement in November,” said Lynn Franco, director of economic indicators at The Conference Board, said in a news release accompanying the data. “While consumers’ assessment of current conditions improved, their expectations declined, driven primarily by a softening in their short-term outlook regarding jobs and financial prospects.”

While Franco doesn’t believe consuming spending will gain momentum in 2020, she also doesn’t believe the economy has shown signs of weakening. And data from the HPSI shows at least half of Americans – 50 percent – expect their personal financial situation to improve over the next 12 months, as compared to 48 percent who believed that a year ago.

Partly in response to evidence from the HPSI demonstrating strong consumer sentiment, Fannie Mae’s most recent macroeconomic outlook incorporated upgrades to the 2020 forecasts for single-family housing starts, new home sales, and mortgage originations.

“We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales activity,” said Duncan.


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