Housing sentiment slides to a decade-plus low

Americans haven’t felt this down about housing since 2011, according to a new survey, as inflation-strained households grow even more pessimistic about market conditions.

An index measuring housing sentiment from Fannie Mae decreased 2 points to 62.8 in July, as worsening affordability weighed on both would-be buyers and sellers. That’s the second-lowest confidence reading in more than a decade and down 13 points from a year earlier.

Only 17% of respondents believe now is a good time to buy a home, down from 20% the month prior. The percentage of homeowners who believe it's a good time to sell continued to shrink, falling to 67% in July from 76% in May.

“The [index] has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” Fannie Mae Chief Economist Doug Duncan said in a press statement. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it's a bad time to buy, as well as, sell a home.”

The figures add to growing signs of a slowing housing market and reflect how rising borrowing costs amid limited inventory levels have cooled demand. The rate on the 30-year home loan stood at 4.99% last week. Still, that’s more than 1.75 percentage points higher than the start of the year.

The effects of rate volatility are tangible.

To start, the share of for-sale homes that sat on the market for 30 days or longer without a contract increased 12.5% in July from a year earlier, according to Redfin. Nearly two-thirds (61.2%) of for-sale homes remained on the market for at least a month, up from 54.4% a year ago.

The year-over-year increase was the second-largest on Redfin records dating to 2012. April 2020 recorded the largest drop of 13.9% when the pandemic brought the entire economy to a full stop.

At the same time, elevated borrowing costs caused nearly 60,000 of home-purchase agreements to fall through in June, or 14.9% of homes that went under contract. According to Redfin, that’s up from 12.7% in May and 11.2% a year earlier.

“You can have people right at the border of being approved and a quarter or a half-point rate increase could push them on the other side of not qualifying,” Jeffrey Ruben, president of WSFS Mortgage, told Yahoo Money. “That’s the fallout from this volatility that we’re experiencing, because it can change very quickly.”

For instance, mortgage rates rose 1.5 percentage points from the start of the year to April, the fastest three-month increase since 1994, according to Freddie Mac.

And they didn’t stop there. Rates on the popular 30-year home loan increased to 5.81% by the end of June. Just as abruptly as they skyrocketed, they tumbled by a half-point in the span of two weeks by mid-July. Now they are nearly a full point lower just under 5%.

Mortgage demand has also weakened in recent weeks as first-time buyers continue to feel the pinch of shifting rates.

Purchase activity increased 1.2% from one week earlier, according to the Mortgage Bankers Association’s survey for the week ending July 29, but remained 16% lower compared to one year ago. Elevated housing prices have also depressed activity for purchases, the MBA said, as Americans see their budgets wear thin.

That’s forcing sellers to rethink their listing price. The share of homes that reduced their list price reached 19.1% in July, up from 9.4% a year ago, according to Realtor.com. As a result, the U.S. median listing price softened slightly to $449,000 in July, just $1,000 below June’s figure.

“You’ll get the occasional bid over asking if the house was aggressively listed, but not anywhere near what it was several months ago where everything was going over ask and there were multiple bids,” Ruben said. “That market is done. We’ve come more to a balance.”

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

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