Despite signs of a strengthening economy, low unemployment and a promise of lower taxes, consumer confidence fell in December, having crept up to a 17-year high in November.
Weighing on consumers' minds were their prospects for employment and financial security in the coming year. Those concerns spilled over into their plans to purchase a home as well, with fewer consumers feeling that now is a good time to buy.
Home sales were strong in November, with existing home purchases increasing 5.6 percent over October and those of new single-family homes soaring 17.5 percent. Nonetheless, demand continues to far exceed availability.
Even as the media tout the "good news" of rising home values, many prospective buyers are becoming disenchanted by the lack of suitable, affordable inventory. This is especially true among lower-income and first-time prospective buyers, many of whom are facing higher rental costs this year.
Fannie Mae reports that its Home Purchase Sentiment Index dipped 2 points in December, after increasing by about the same in November. The net share of respondents who agreed with the statement "now is a good time to buy" a home fell by 5 points from the previous month and was down 8 points from the same time the previous year.
Respondents felt home prices and mortgage rates would remain relatively stable in the coming year, with the exception of renters, whose expectations for price increases reached an all-time survey high. In general, respondents were more cautious about their employment and income prospects in 2018 and how that might affect their ability to qualify for a mortgage or afford a home.
"Housing affordability remains a persistent challenge," said Doug Duncan, senior vice president and chief economist at Fannie Mae.
The National Association of Realtors' Housing Opportunities and Market Experience (HOME) Survey for the fourth quarter of 2017 reports a similar weakening in homebuyer confidence. The percentage of respondents who said now is a good time to buy a home fell from 77 percent in the third quarter to 72 percent in December. In addition, the portion who believed home prices have gone up in the past six months (64 percent) and those who believed they would increase in the next six months (52 percent) both rose since the last survey.
Concerns about rising home prices plus a perception that the economy was not improving as well as it was earlier in the year heightened worries about the ability to afford a home purchase. Nearly two-thirds of respondents (60 percent) said they believed they would have some or significant difficulty qualifying for a mortgage.
Even with the robust showing of activity, there were already some signs in November that buyer activity might start to taper off. Real estate website Redfin states that its Housing Demand Index, which measures the number of its customers requesting home tours and writing offers, dropped 6.2 percent between October and November and that number of buyers making offers declined 14.7 percent in the same period.
Redfin's results accord with the NAR's finding that pending home sales remained more or less flat in November as a result of fewer options for many prospective buyers.
"The strengthening economy, and expectation that more millennials will want to buy, serve as promising signs for solid homebuying demand next year, while also putting additional pressure on inventory levels and affordability," observed NAR chief economist Lawrence Yun, sounding a familiar note.
Several factors may have contributed to consumers' anxiety in December, including:
- mixed messages concerning the impact of the new tax reform legislation on personal income, home ownership and employment prospects
- stories of struggling retail giants like Sears and Macys
- the Federal Reserve's decision to raise interest rates despite low levels of inflation
- the usual uncertainty that comes with the ending of one year and the start of another
How those issues play out in the coming months may determine what type of year housing will have in 2018.
