Saturday, September 13, 2014

The Housing Recovery Is Decelerating

Six years into the so-called "housing recovery," consumer sentiment toward homeownership has never been worse.

According to Fannie Mae's National Housing Survey, the number of Americans who said "now is a good time to buy a home" dropped to 64% in August - down from 67% in July to reach the lowest point in survey history.

What's more, the number of people who said now is a good time to sell a home dropped to 38%, down from 42% in July.

As a result, Fannie Mae is forecasting that 2015 "will likely not be a breakout year for housing."

"The deterioration in consumer attitudes about the current home buying environment reflects a shift away from record home purchase affordability without enough momentum in consumer personal financial sentiment to compensate for it," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "To date, this year's labor market strength has not translated into sufficient income gains to inspire confidence among consumers to purchase a home, even in the current favorable interest-rate environment. Our third quarter Mortgage Lender Sentiment Survey results, to be released later this month, are expected to show whether mortgage demand from the lender perspective is in line with consumer housing sentiment."

The main problem facing the housing industry is that, although the job market posted some gains last month, the vast majority of new positions added are part-time, low-wage jobs that don't pay enough to cover the cost of a mortgage on a median-priced home. What's more, wage growth has almost completely stagnated for existing positions. Meanwhile, inflation continues to drive up the cost of living for most Americans.

Add to this the fact that home prices continue to rise and lending standards are stricter than ever, and it's easy to see why so many Americans feel they have been shut out of the housing market. Hurting Americans' morale even further is the fact that more than a third of transactions are now all-cash sales to individual private investors and investment firms - many of which are foreign-based.

"We have always believed that for the housing recovery to be considered robust, we will need strong and sustained full-time job and income growth," Duncan added. "Recent data indicating the creation of more than 200,000 jobs over each of the last six months, combined with this month's improvement in the share of consumers reporting significantly higher household income than a year ago, does provide some reason for optimism. If these trends continue, they could lead to some upside in housing in 2015."

The share of respondents who said home prices would go up in the next 12 months held steady in August at 42%, while the share of respondents who said home prices would go down increased to 9%.

On average, survey respondents forecast that home prices will rise by about 2.1% over the next year.

The share of respondents who said mortgage rates would go up in the next 12 months fell by four percentage points to 50%.

The percentage of respondents who expect home rental prices to go up in the next 12 months increased to 53%. On average, survey respondents expect rents to rise by 4.1% over the next year.

On a bright note, the share of respondents who think it would be easy to get a mortgage today increased by one percentage point.

The share of respondents who said they would buy if they were going to move fell to 64%, while the share of respondents who would rent increased to 32% - the narrowest gap in over a year.

Still, the survey shows that consumers are, in some ways, positive about the direction the economy is taking. The share of respondents who say the economy is on the wrong track fell three percentage points 56% - and the percentage who expect their personal financial situation to get better over the next 12 months increased to 44%.