Housing Confidence Has Bottomed Out—But Experts Say There’s Light at the End of the Tunnel?

For all the recent talk about a possible interest rate easing in 2024 and the low likelihood of a severe recession, people are still feeling pessimistic. The Fannie Mae Home Purchase Sentiment Index for November is out, and it paints a general picture of low confidence among both homebuyers and home sellers. 

As interest rates began to climb in 2022, consumer confidence in the housing market began to plummet, reaching their lowest levels by late 2022. Confidence stabilized somewhat in 2023 but quickly reached what Fannie Mae is calling a ‘‘low-level plateau.’’

Fannie Mae measures home purchase sentiment by collecting data from its questionnaire. The questionnaire, which uses responses from 1,000 adults (aged 18-plus) who are household decision-makers, has several components, including people’s perceptions of whether right now is a good time to buy or sell, concerns about the job market, and expectations about interest rates.

Economic Uncertainty Means a Muted Outlook

The November result is not encouraging for real estate investors. While the mood is not quite as gloomy as it was last year—the overall index is up 7 points year over year—there clearly is a long way to go before consumer confidence in the housing market is restored in any meaningful way. 

The most stark figure in the index is the meager 14% of respondents who believe that now is a good time to buy a home, which is a new survey low. This incredibly low number is, of course, tied in with respondents’ increasingly downbeat expectations about the interest rate trajectory, as well as their own purchasing power, as unemployment continues to climb and the economic outlook remains uncertain.

Doug Duncan, Fannie Mae senior vice president and chief economist, points out in a news release that at the end of last year, as interest rates reached 7%, ‘‘a rate level not seen in over a decade, a plurality of consumers said they expected home prices to decrease; however, that optimism faded over the course of 2023.’’

Currently, 22% of survey respondents think that mortgage rates will go down in 2024. That’s an increase of 8% from the month before, but this optimistic outlook is still seen in the minority of respondents, with the majority thinking that rates will either go up further (44%) or stay the same (34%).

Add to this the fact that 24% of those surveyed believe home prices will go down, while the majority again believe that home prices will continue going up or will stay the same, and the overall picture becomes clear: Right now, consumers simply don’t believe that affordability will improve. 

To top it off, most consumers are experiencing stagnating or declining household incomes, with 68% saying their income has stayed about the same and 12% reporting it was significantly lower than before. Only 19% said their income significantly increased.  

What People on the Ground Are Saying   

No one should be surprised that people who are losing confidence in their financial stability while witnessing continually increasing home prices and interest rates don’t have much faith in their ability to buy a home—or are reluctant to put their current home on the market. 

We spoke to licensed real estate agent Erin Hybart, who says that in her experience, sellers “are hesitant to list if they do not have to sell because they know buyers are stretched thin financially with higher interest rates. There’s also worry about affording the mortgage on their next house and the interest rates at the current level.‘’

However, Hybart is noticing a somewhat different attitude among buyers who are ‘‘still in the game, often grabbing deals from motivated sellers or on outdated houses.’’ Those who really want a home of their own are still trying to get one—they’re just smarter about it, and they’re prepared to compromise on size.

This is actually good news for real estate investors and house flippers. Hybart points out: ‘‘Now’s a good time to buy smaller, fixer-upper homes, as there’s a growing demand for move-in ready, smaller houses as housing affordability declines.’’

Realtor and chief lending officer at New Jersey-based Approved Funding Shmuel Shayowitz also tells BiggerPockets that his on-the-ground experience isn’t as bad as the report makes out, adding, ‘‘My clients are starting to get more active in the market with the recent rate drop.” 

Whether the Fed will drop rates next year, as is widely speculated, remains to be seen. If rates do begin to come down next year and the U.S. avoids the much-talked-about recession, consumer confidence in the housing market is very likely to bounce back. 

And if rates don’t go down? LA-based Ashby & Graff Real Estate CEO John Graff offers BiggerPockets readers a word of tough wisdom: ‘‘Buyers and sellers will have to get used to our new normal.’’

The Bottom Line

Has the housing market been increasingly difficult to navigate? Without a doubt, both buyers and sellers know this. However, the desire to own a home is likely to eventually override all misgivings for many people. Investors who can offer a value-for-money, ready-to-move deal in local markets where demand for single-family homes is high may still be in luck despite the current pessimism. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.