National Housing Survey

Softening HPSI May Portend Slower Housing Market in 2022

Affordability Expected to Be a Growing Challenge for Potential Homebuyers

January 7, 2022

The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 0.5 points to 74.2 in December, as consumers continued to report substantially divergent views of homebuying and home-selling conditions. Overall, three of the index’s six components decreased month over month. In December, 76% of respondents reported that it’s a good time to sell a home, compared to the survey record-low 26% of consumers who reported that it’s a good time to buy. By comparison, in December 2020, 50% of respondents believed it was a good time to sell, while 52% believed it was a good time to buy. Year over year, the full index is up 0.2 points.

“The HPSI’s underlying components changed dramatically in the last 12 months – particularly the two related to homebuying and home-selling sentiment – and we have seen the index drift slightly downward since March 2021, an indication that the housing market may begin to soften in the coming year,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Over the past year, low mortgage rates plus government stimulus programs helped increase mortgage demand, but the bidding-up of homes increased prices to record levels, making affordability a greater constraint for both first-time and move-up homebuyers. Among homeowners, the ‘good time to buy’ sentiment fell 30 percentage points over the past year to its current level of 30%; for renters it fell from 37% to 21%. Even though demand remains strong, a majority of consumers clearly have reservations about purchasing a home at current prices.”

Duncan continued: “We currently expect mortgage rates to continue to drift modestly upward through year end, despite inflation concerns, which will likely compound the affordability concerns expressed by consumers in the HPSI. Recent MBS issuance data indicating a rise in average debt-to-income levels also backstop that concern, suggesting additional affordability constraints. Combined with our survey results showing rising expectations for higher rent prices among consumers, we believe some would-be renters may look to accelerate their home purchase timeline, helping to drive continued strong (though decelerating) home price growth. We do expect an increase in new homes to come to market later in 2022, which should provide some supply relief; however, it may not be enough to meaningfully affect home prices. As such, affordability is likely to be a growing challenge over the coming year.”