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The Fannie Mae Home Purchase Sentiment Index (HPSI) increased by 0.6 points in January to a reading of 61.6. Despite increasing for the third consecutive month, consumer sentiment toward housing remains “well below” its pre-pandemic levels, according to Fannie Mae.

On a month-over-month basis, sentiments toward home selling conditions, home price outlook, and household income improved in January. However, only 17% of respondents believe it is a good time to buy a home, primarily due to affordability challenges presented by elevated mortgage rates and home prices. On a year-over-year basis, the HPSI is down 10.2 points.

“January’s HPSI results showed that consumer sentiment toward the housing market remains subdued by historical standards,” says Fannie Mae senior vice president and chief economist Doug Duncan. “For consumers, the same affordability issues are persisting, as they continue to indicate that high home prices and high mortgage rates make it a ‘bad time to buy’ a home.”

According to Fannie Mae, the percentage of respondents who say it is a bad time to buy a home increased from 76% to 82% in January. The share of respondents who say it is a good time to sell a home increased to 59% from 51%, while the percentage of respondents who say it’s a bad time to sell decreased 3 percentage points to 39%.

“The latest survey data also indicated that the majority of consumers expect home prices to decrease or remain flat over the next year, which may incentivize some potential home buyers to delay their purchase decision,” Duncan says. “Although ‘good time to sell’ sentiment ticked upward this month, it’s still much lower than it was a year ago, as purchase affordability remains seriously constrained and mortgage demand has receded.”

The net share of respondents who believe home prices will go up increased 2 percentage points month over month in January. The percentage of respondents who say mortgage rates will go down in the next 12 months decreased 1 percentage point to 13% while the percentage who expect mortgage rates to go up increased 1 percentage point to 52%. Duncan says barring improvements in affordability via lower home prices and mortgage rates, Fannie Mae projects home sales to remain “muted” in the coming months.

According to Fannie Mae, the net share of those who are not concerned about losing their job remained unchanged in January on a month-over-month basis. Additionally, the net share of those who reported their household income was significantly higher in January than 12 months ago increased 2 percentage points on a month-over-month basis.

The HPSI consolidates information about consumers’ home purchase sentiment from Fannie Mae’s National Housing Survey (NHS) into a single number. Using answers from six NHS questions, the HPSI reflects current and forward-looking expectations of housing market conditions and complements existing data sources.