September 05, 2022 – While some of the latest reports on consumer confidence and housing sentiment might have painted a more positive picture for the housing market conditions in August, recent developments in the lending environment and the financial market suggest that we could see more market uncertainty ahead of us. With interest rates rising sharply in the past couple weeks and the S&P 500 index falling nearly 9% since mid-August, the housing market will likely encounter more headwinds in the fall as the risk of recession looms large while high inflation remains a concern.
Consumer confidence hits 4-month high in August: The Conference Board's monthly snapshot of consumer attitudes rose to 103.2 from July's downwardly revised 95.3. The share of consumers that see jobs as “plentiful” fell, but so too did the share finding jobs as “hard-to-get”. The expectations component shot up almost 10 points to 75.1. While that is an improvement, it still places the measure at a point that is lower than all but three months in the past eight years. Gas prices at 4-month low might have provided some relief to consumers last month, but the decline in stock prices since mid-August could weigh on confidence in the coming month if markets continue to dip.
Housing sentiment improves as prices dip: Consumers’ optimism bounced back last month as rates declined in early August while home prices continued to moderate. Results from the C.A.R.’s latest monthly sentiment survey showed that respondents who believed it was a good time to buy a home rose month-over-month for the third straight month to 19%. As the average 30 year fixed-rate mortgage dipped below 5% in the first week of August, some buyers might have seized a rare opportunity to buy during that time window. Meanwhile, those who believed it was a good time to sell a home continued to decline to 52% and dropped sharply again from last August’s 72%. With interest rates started rising since mid-August, housing sentiment will likely reverse its direction in September. In fact, two-thirds (64%) of the consumer respondents still believed that the overall economic conditions in California would not improve in the next 12 months, and three quarters (75%) believed that interest rates would rise in the next 12 months.
Mortgage rates reach highest level in two months: Since dipping below 5% - a 4-month low - in early August, interest rates have been climbing throughout most of August with the 30-year fixed-rate mortgage (FRM) averaging 5.66% in the latest Freddie-Mac’s weekly survey. A year ago, the 30-year FRM averaged 2.87%. Higher interest rates have hurt buyer demand significantly, with purchase applications declined in eight of the last nine weeks. As sellers continue to recalibrate their pricing to accommodate lower demand, home prices will likely level off further as the market moves into the fall season.
