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Housing confidence craters once more as mortgage rates spike

Americans are feeling worse about the housing market again.

Fannie Mae’s gauge of housing sentiment dropped 3.8 points in February to 58.0, falling close to its record low set last year and reversing three months of consecutive gains. Overall, 44% of consumers reported that it’s a bad time to sell, up from 39% last month. At the same time, 24% of respondents expressed concern about losing their job in the next 12 months, up 18% last month.

Both buyers and sellers were pessimistic about the market, Doug Duncan, chief economist and senior vice president at Fannie Mae, said. He noted the decline in sentiment coincided with a run-up in mortgage rates in February after they had softened some since November.

“With home-selling sentiment now lower than it was pre-pandemic – and home-buying sentiment remaining near its all-time low – consumers on both sides of the transaction appear to be feeling cautious about the housing market,” Duncan said in a statement. “We believe these results corroborate our expectation for subdued home sales in the coming quarters, particularly now that mortgage rates have begun rising again.”

Kevin Thompson, left, and Dave Garro of Bold Moves Real Estate dig a real estate sign out of the snow pack in the front yard of a property on Crestfield Street in Mattapoisett, Mass. (Credit: Stephan Savoia)
Kevin Thompson, left, and Dave Garro of Bold Moves Real Estate dig a real estate sign out of the snow pack in the front yard of a property on Crestfield Street in Mattapoisett, Mass. (Credit: Stephan Savoia) (ASSOCIATED PRESS)

The results underscore how heavily affordability conditions have dampened the housing market ahead of the spring.

In the last month, the rate on the 30-year fixed mortgage surged over a half-point to 6.65%. As a result, homebuyers pulled back on their purchasing plans, the Mortgage Bankers Association found, with purchase activity plunging to a 28-year low by the last week of February.

Buyers still in the market also face higher home prices.

The median listing price on a home sold in February rose to $415,000, Realtor.com data showed, up from $406,000 the previous month. At last week’s rate, that translates to a typical monthly mortgage payment of $2,132, or 49% more than a year ago.

That financial blow was reflected in buyers' cratering confidence levels. At least 79% of respondents said that buying conditions were bad last month, Fannie Mae found, while only 20% said it was a good time to buy. While confidence in buying conditions increased 5 points, they remained 21 points lower than a year ago.

As for outlook on mortgage rates, respondents were also less optimistic.

Only 15% of those surveyed said they expected rates to go down over the next 12 months, while 55% expect another increase in mortgage rates. On Tuesday, it didn’t appear that Federal Reserve Chairman Jerome Powell was ready to back down from increasing its benchmark rate, noting that inflation remains too high. That could keep mortgage rates from falling anytime soon.

According to Melissa Cohn, regional vice president of William Raveis Mortgage, it's best to keep a positive outlook despite the current rate climate.

“Rates will come down. It’s not a question of if. It's really a question of when, and our timeline has been thrown off,” Cohn told Yahoo Finance. “As such, it may be best to relax, keep an eye on the market, and remember that everything is transitory — more favorable conditions will reappear at some point. It’s just a matter of being patient.”

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

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