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Fannie Mae Index on Consumer Home Buying Sentiment Reflects Improving Housing Market

By Steve Deggendorf | June 16, 2016

Fannie Mae Index on Consumer Home Buying Sentiment Reflects Improving Housing MarketFor insights about consumers’ general attitudes and intentions about the broader economy, many industry experts have traditionally relied on measures of consumer sentiment. The two best-known and most widely used measures are the University of Michigan’s Index of Consumer Sentiment and the Conference Board’s Consumer Confidence Index

The years since the Great Recession have seen volatility in the broader economy and housing markets. To help make sense of this volatility, Fannie Mae’s Economic & Strategic Research (ESR) Group developed a single, easy-to-understand measure of consumer sentiment specifically about housing. They felt that the index would be more valuable for housing insights and forecasts than the broader consumer sentiment measures. Especially considering that the broader economy and the housing economy do not always move in lockstep.

Working with Professor Jim Wilcox of the University of California, Berkeley, Fannie Mae researchers developed a monthly measure reflecting changes in Americans’ attitudes and intentions about home buying. The team used responses to the National Housing Survey™, a monthly telephone survey of about 1,000 consumers that the company has conducted since 2010.

Their analysis of housing markets and the survey data led the team to form an index from the answers to six of the survey’s more than 100 questions:

  • Is this a good time to buy a house?
  • Is this a good time to sell a house?
  • Over the next 12 months, do you think home prices will go up, go down, or stay the same?
  • Over the next 12 months, do you think mortgage rates will go up, go down, or stay the same?
  • How concerned are you that you might lose your job in the next 12 months?
  • How does your monthly household income compare to what it was 12 months ago?

Consumers’ responses to these six questions are combined into a single measure that the team dubbed the Home Purchase Sentiment Index™, or HPSI. Since it was launched last September, the HPSI has not shown any major fluctuations.

Naturally, the HPSI rises and falls slightly each month. The HPSI rose slightly with the return of the spring home-buying season this year. Economists in Fannie Mae’s ESR Group interpret the relative stability of the HPSI over the past several months as the product of consumers not having changed their sentiments drastically one way or the other.

This is consistent with Fannie Mae’s broader analysis of the housing market. It shows that lower unemployment rates may be encouraging potential buyers to explore buying a home – even as lower inventory in some areas may be driving up prices, especially for first-time homebuyers.

As Wilcox notes, “It’s actually encouraging that we haven’t seen many changes in the HPSI in the months since we launched. If we had seen large declines, for example, that might well have signaled that consumers saw problems in housing markets and intended to reduce their home buying. The stability of the HPSI can also provide some reassurance to lenders who already hold mortgages and to lenders who originate them.”

Other parts of the housing industry – from construction, to suppliers, to sales, to financial services – can also look to the HPSI for insights about housing markets. There may be ongoing challenges from lack of for-sale housing inventory and reduced affordability. But potential homebuyers have not changed their perceptions much about being able to purchase a home, about facing a favorable interest rate environment, and about whether their jobs are secure enough to be able to take on a home loan.

That is potentially good news for a housing market that continues in a slow, steady recovery.

Steve Deggendorf is a director with Fannie Mae’s Economic & Strategic Research Group.

Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions, and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.