Dive Brief:
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An index kept by government-backed lender Fannie Mae to gauge consumer sentiment around housing fell for the third-consecutive month to a reading of 81.7 in October, down 1.1 percentage points from September and 1.5 percentage points from a year ago.
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Per the Home Purchase Sentiment Index, more consumers are optimistic about selling a home today than were a year ago, up 9 percentage points for the period to a mark of 19 on the index. Meanwhile, fewer consumers thought it was a good time to buy a home, down 3 percentage points for the period.
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A host of factors weighing on consumer sentiment and leading to uncertainty around housing include expectations of mortgage rate increases, the potential for home price gains to soften and a drop-off in income potential, according to Fannie Mae Chief Economist Doug Duncan.
Dive Insight:
Factors like those cited by Duncan are creating drag for the housing market’s recovery — though it’s largely expected. The latest National Association of Home Builders/First American Leading Markets Index reported that the U.S. housing market was running at 98% of normal economic activity during the third quarter, up from 97% in the second quarter and 93% a year ago.
Tight inventory conditions are challenging would-be homebuyers by extending the timeline of a typical home search while contributing to rising prices in key metros, particularly in the West. Such was the case in the third quarter, according to the National Association of Realtors, with seven of the 10 most expensive U.S. residential markets located in the West region. Meanwhile, the most affordable markets continued to found in the Midwest and on the industrial East Coast.
Continual gains in home prices have posed an "affordability crisis" in many U.S. markets, CoreLogic President and CEO Anand Nallathambi said in the data company’s latest Home Price Index release. Home prices were up 6.2% from August 2015 to August 2016, and economists are forecasting only a slight softening (5.3%) for the year ahead.
Elevated prices are keeping younger buyers out of the market, though recent market reports indicate that the millennial group — which is expected to form households at a rate of 2 million annually for the next 10 years — is trickling back onto the market. First-time buyers, many of whom are also millennials, currently take a 35% share of home sales, according to the NAR’s 2016 Profile of Home Buyers and Sellers, up from 32% in 2015 but still off that group’s typical share of 40% before the recession.
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