Growing share of Americans believe home prices will fall

·Personal finance writer
·5 min read

More and more Americans think home prices are on their way down.

The share of respondents who believe home prices will decline increased to 33% in August from 30% the month prior, according to a monthly survey from Fannie Mae, while the percentage who think they will go up in the next 12 months declined to 33% from 39%. On net, the percentage of Americans who say home prices will go up decreased 9 percentage points month over month.

Overall, Fannie Mae's index measuring housing sentiment again fell in August and remains at the lowest level since 2011, reflecting the about-face housing has experienced this year as higher mortgage rates halt a once-runaway market.

“The share of consumers expecting home prices to go down over the next year increased substantially in August,” Fannie Mae Chief Economist Doug Duncan said. “We also observed a large decline in consumers reporting high home prices as the primary reason for it being a good time to sell a home, suggesting that expectations of slowing or declining home prices have begun to negatively affect selling sentiment.”

Prospective buyer Jeff Barranco and realtor Michael Walsh talk about home prices at 52 Pierce street. (Credit: Ted Fitzgerald, Boston Herald via Getty Images)
Prospective buyer Jeff Barranco and realtor Michael Walsh talk about home prices at 52 Pierce street. (Credit: Ted Fitzgerald, Boston Herald via Getty Images)

Homebuyer confidence rebounds some

Some 22% of respondents believe now is a good time to buy a home, according to Fannie Mae, up from 17% the month prior, but down from 32% a year ago.

But the small boost in confidence still hasn’t been enough to spur sidelined buyers to re-enter the market, Duncan said. At least 71% of respondents say the economy is on the wrong track, with younger buyers feeling less inclined to purchase anytime soon.

Rate volatility is likely to blame, Mark Palim, deputy chief economist and vice president at Fannie Mae, told Yahoo Money. The rate on the typical 30-year fixed home loan surged to 5.89% this week, according to Freddie Mac, the highest point since November 2008.

“We’re in a time period where we’ve seen a significant increase in mortgage rates. From the end of last year, they’ve jumped nearly 3 percentage points and continue to move week by week,” Palim said. “Buyers are now just adjusting to these higher rates, but [confidence] is still meaningfully down from where it was before rates rose.”

Inflation, low inventory, and high home prices have also depressed housing sentiment.

Mortgage demand hit a 22-year low in August, according to a separate survey by the Mortgage Bankers Association for the week ending Sept. 2. Purchase demand declined for the ninth consecutive week, and was 23% lower than the same week a year ago.

The share of respondents who believe it is more difficult to get a mortgage today increased to 50% in August, up from 47% the month before. That’s the highest level in two years, Fannie Mae reported.

Prospective buyers Nick (L) and Laura Partee visit an open house for sale in Alexandria, Virginia. Real estate agents in several parts of the United States are beginning to see signs of life among people looking for homes to buy.  (Credit: Jonathan Ernst, REUTERS)
Prospective buyers Nick (L) and Laura Partee visit an open house for sale in Alexandria, Virginia. Real estate agents in several parts of the United States are beginning to see signs of life among people looking for homes to buy. (Credit: Jonathan Ernst, REUTERS)

Home-sellers grow more pessimistic

As the housing market cools down, home prices are expected to moderate and potential sellers have taken notice.

The percentage of sellers who believe it's a good time to sell decreased from 67% to 59% in August, Fannie Mae found, while those who say it's a bad time to sell increased 8 percentage points.

The median home price fell to $435,000 in August, down from $449,000 last month. That’s the sharpest month-to-month home price decline recorded in six years, Realtor.com data showed. It’s also a significant drop from June's high of $450,000.

“Consumers are going to be more concerned about what path home prices will take next year, especially after the record increases we’ve seen during the pandemic,” Palim said.

Real estate broker Rebecca Van Camp places a placard on her sign in front of a home in Meridian, Idaho.  A growing number of home sellers have reduced listing prices to attract price-struck homebuyers in recent months. (Credit: Darin Oswald, The Idaho Statesman via Getty Images)
Real estate broker Rebecca Van Camp places a placard on her sign in front of a home in Meridian, Idaho. A growing number of home sellers have reduced listing prices to attract price-struck homebuyers in recent months. (Credit: Darin Oswald, The Idaho Statesman via Getty Images)

Home prices remain 39.6% higher than in August 2019 and out of reach for price-strapped buyers. With current rates at 5.89%, the median monthly payment on the typical home hovered around $2,100, Realtor.com data showed, over 61% more than last year.

“That’s a significant number and folks are definitely noticing,” Palim said.

To meet buyers half way, home sellers who haven’t pulled their listings off market have started to cut prices. The share of homes with price reductions neared pre-pandemic levels in August – jumping to 19.4%, up from 11% last year.

It also means buyers are gaining back some negotiating power, and willing to cancel a deal if a seller doesn’t agree to contract contingencies or repairs. Nationwide, about 63,000 home-purchase agreements were canceled in July, Redfin said, the highest rate in two years.

“With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home sellers may be incentivized to remain on the sidelines,” Duncan said.

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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