People wait to visit a house for sale in Floral Park, Nassau County, New York.
Wang Ying | Xinhua News Agency | Getty Images
Anyone out hunting for a house knows that bidding wars are no longer the exception, but the rule.
Demand for housing has been unusually strong, due to the coronavirus pandemic, and supply is historically lean. That is a recipe for high prices, which are now beginning to take their toll on potential homebuyers’ confidence.
The share of buyers who say they think it’s a good time to buy fell in September, from 59% to 54%, according to a new survey from Fannie Mae.
Home values were up nearly 6% annually, according to CoreLogic, a data analytics firm. More consumers now expect those price gains to grow.
The percentage of respondents to the Fannie Mae survey who says prices will go up in the next year increased from 33% to 41%, while the share who said prices would go down decreased from 26% to just 17%.
More people do think now is a good time to sell a home, which is an improvement from the first months of the pandemic, when potential sellers didn’t want shoppers in their homes and worried about the state of the overall economy.
If seller sentiment improves substantially, that could help bolster supply and take away at least some of the heat in prices.
“Going forward, we believe the wild card to be whether enough sellers enter the market to continue to meet the strong homebuying demand,” said Doug Duncan, Fannie Mae’s chief economist. “The home purchase market requires the proper mix of home price growth and continued economic recovery to achieve sustainable levels of housing activity.”
Falling mortgage rates have been driving buyers into the market, especially as rates set record after new record. While rates haven’t moved off those record lows, they do appear to have plateaued.
“With near record low rates, buyer demand remains robust with strong first-time buyers coming into the market,” said Sam Khater, Freddie Mac’s chief economist. “The demand is particularly strong in more affordable regions of the country such as the Midwest, where home prices are accelerating at the highest rates over the last two decades.”
The concern is on the low end of the market, where mortgage rates play an outsized role. Affordability is already hurting, and if rates don’t move, or move slightly higher, some buyers may be edged out.
The average loan size in mortgage applications to purchase a home has set record highs for the past several weeks, according to the Mortgage Bankers Association, meaning more of the buyer activity is on the higher end of the market. This suggests some lower-end buyers are already being sidelined.