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Market Outlook – News

Overall housing sentiment in February increased compared to the previous month but remains lower than last year. The Fannie Mae Home Purchase Sentiment Index® (HPSI) for February increased by 3.5 points to 75.3. The index, which measures housing attitudes, intentions, and perceptions using six questions from the National Housing Survey® (NHS), is a good indicator of eventual buyer and seller behavior during the homebuying season.

In February, both buyer and seller sentiment increased as employment conditions improved. However, it is important to note that sentiment was measured before Russia’s invasion of Ukraine which has created greater geopolitical and economic uncertainty and is expected to add further inflationary pressure to the American which may further impact budget-strapped homebuyers.   

Buying Sentiment Improves But Faces Strong Headwinds

The share of respondents who think it’s a good time to buy increased to 29%, a 4 percentage point increase above January levels. Likely driving this more positive sentiment is increased job security, as the percentage of respondents who said they are not concerned about losing their job in the next 12 months increased to 87% from just 78% in January. The month saw 678,000 new jobs added to company payrolls, a rate which outpaced expectations. Additionally, the share of respondents who reported that their household income is higher than it was 12 months ago increased slightly to 27% from 26% last month. However, it is important to note that respondents were surveyed prior to the Russian invasion of Ukraine and other long-term headwinds are still developing. Housing inventory remains near all-time lows as homes are still quickly snapped off the market, pushing prices to new highs. In this month’s survey, the share of respondents who expect home prices to go up in the next 12 months increased to 46% from 43% the previous month.

Interest rates, while down in the most recent week due to investor concern about the Russia-Ukraine conflict, are still higher than last year and are eating into the typical homebuyer’s budget. At last week’s rates, the buyer of a median price home paid $278 more than a year ago on their mortgage payment. Further rate hikes are also expected as the Federal Reserve intends to combat inflationary pressures with another hike at its mid-March meeting. In this month’s survey, the share of respondents who expected mortgage rates to go down in the next 12 months decreased from 4% last month to 3% in February.

Selling Sentiment Increases

After declining in January, home selling sentiment saw an improvement in February. The percentage of survey respondents who said it is a good time to sell a home increased to 72% from 69% in January. The housing market saw more new listings in the final two weeks of February than the previous year, aligning with this increase in seller sentiment. While the share of respondents who think it’s a good time to sell is lower than the 2021 peaks of 77% in June and October, this share is still 17 percentage points higher than last February. However, it’s important to note that sentiment was measured before the Russia-Ukraine conflict which has created greater economic uncertainty. We will be watching to see if sellers again place plans to list on hold in the coming weeks.

What This Means for Housing Going Into the Spring Season

While housing sentiment improved in February, the market faces long-term headwinds in the form of declining affordability and limited inventory. Additionally, a prolonged and expanded conflict in the Ukraine combined with inflationary pressures could have detrimental effects on housing which may not be apparent at this time. Next month’s survey will provide greater insight into how home are adjusting to these new realities.

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