A record number of Americans are frustrated by today’s housing market and think now is a terrible time to buy.
That’s according to Fannie Mae’s latest monthly survey, which found 85% of U.S. consumers said it was a “bad time” to purchase a home in the month of October — the highest share since Fannie Mae began the survey.
The U.S. real estate market continues to be plagued by unaffordability issues, with most respondents citing high home prices and high mortgage rates as the primary reasons why they believe it’s a bad time to buy.
Meanwhile, high home prices and borrowing rates aren’t having as much of an impact on sellers. Only 37% believe it’s a “bad time” to sell a home, according to the survey.
Frustrations with housing market, inflation
Overall, the Fannie Mae Home Purchase Sentiment Index remained largely flat in October, with “frustration toward housing unaffordability and an economy battling inflation continues to depress overall sentiment,” according to a Tuesday news release.
Even though there was an uptick in the share of U.S. consumers expressing greater job security and improved household income, 78% of survey respondents believe the economy is on the “wrong track,” up 7 percentage points from September, with the vast majority again pointing to inflation as their top reason for that belief.
“Consumers expressed even greater pessimism toward the larger economy this month, in addition to their ongoing frustration with the housing market,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in a statement.
Frustration with inflation tracks across all income groups, he said, indicating “consumers are fed up with the high prices of many goods and services.”
“Although the labor market is strong and wages have risen in the past year, consumers may believe that their purchasing power has not kept up with prices, as 69% of consumers say their incomes are ‘about the same’ compared to the previous year,” Duncan said. “We expect this tightness in household finances, along with high home prices and elevated mortgage rates, to prolong the affordability challenges facing many would-be homebuyers.”
How much does it cost to buy a home?
The monthly mortgage payment needed to purchase the median-priced home rose to a historical high of more than $2,500 thanks to high rates and home prices, according to the Intercontinental Exchange’s November mortgage monitor report released Monday by Black Knight.
In October, mortgage rates spent all but one day above 7.5%, according to Andy Walden, the exchange’s vice president of enterprise research. That means it now takes over 40% of the median household income to cover monthly principal and interest payments. In the past 35 years, that figure has averaged less than 25% — making today the least affordable housing market since 1984.
“Mortgage rates haven’t been that high in 23 years, which continues to hammer affordability. The situation was already dire, but recent weeks have seen rates climb to where it now takes nearly 41% of the median monthly income just to make the P&I payment needed to purchase the median-priced home,” Walden said. “That payment has risen by $144 over the past 30 days and now sits above $2,500 a month for the first time in history.”
Affordability issues in the U.S. aren’t just coming from interest rates, Walden noted.
“The last time affordability was this bad in the ’80s, rates were in the double digits and the average home was about 3.5 times median income, in stark contrast to today’s price-to-income ratio of nearly 6-to-1,” he said.
Are home prices going to come down?
Tight housing inventory has been keeping home prices high, but monthly gains have been slowing as affordability issues increasingly weigh on buyers.
“Now, with rates above 7.5% and affordability at a 39-year low, it’s fair to expect prices to weaken later in 2023,” Alden said.
There are already signs of the housing market weakening and a growing number of sellers cutting prices heading into the final months of the year. Redfin on Saturday reported nearly 7% of homes for sale posted a price drop during the four weeks ending Oct. 29 on average — the highest share on record since Redfin began tracking the data in 2012, Fortune reported.
Sale prices are still up 3% from a year ago, but the total number of homes for sale is down 10% year over year, according to Redfin.
“Price drops becoming more prevalent than ever while prices continue increasing illustrates today’s bizarre housing market,” Redfin reported. “Redfin agents describe a mismatch between sellers’ high expectations and the reality of buyers’ budgets, saying it’s more important than ever for sellers to price fairly from the start to attract buyers and sell quickly.”