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Why home prices may keep falling

What’s the latest consumer index show?

Consumer outlook keeps dropping as both buyers and sellers face the negatives in the fluctuating housing market.

The Fannie Mae Home Purchase Sentiment Index fell again in August, decreasing 0.8 percentage points last month, Fannie Mae announced.  The index was at 62 points in August, down 13.7 percentage points year-over-year.

The report marks the sixth straight month of declining sentiment. Perception of the market has been on a downhill slide among both buyers bogged down by rising mortgage rates and sellers discouraged by cooling prices.

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Do consumers think this is a good time to buy housing?

More consumers appear to think it’s a good time to buy as the housing market cools. The net share of those saying it’s a good time to buy increased 8 percentage points month-over-month, though only 22 percent think it’s the right time to make a purchase.

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Is this a good time for home sellers?

If more think it’s a good time to buy, fewer think it’s a good time to sell. Seller sentiment dropped 16 percentage points from July to August. A majority (59 percent), however, still believe it’s a good time to sell.

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Do home buyers think the housing market will heat up?

In addition to sliding sentiment based on current indicators, more respondents aren’t expecting the market to heat up any time soon, as the net share who think home prices will increase in the next year declined by 9 percentage points.

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Do home buyers think mortgagee rates will rise or fall?

There’s also a growing belief that the mortgage market may have topped out. The net share of those saying mortgage rates will drop in the next year increased by 11 percentage points.

The survey comes as Freddie Mac this week recorded the average 30-year fixed-rate mortgage at 5.89 percent, the highest in 14 years. Rates will likely continue to rise if the Federal Reserve hikes interest rates, which it appears poised to do by the end of the month.

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The housing market and the bottom line

With the frenzied changes unfolding in the housing market, some buyers and sellers may feel too paralyzed to pull the trigger on any deals, instead waiting to see if the market shifts further in their respective favor soon.

“Both homebuyers and home-sellers may be incentivized to remain on the sidelines — homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate — contributing to a further cooling in home sales through the end of the year,” Fannie Mae senior vice president and chief economist Doug Duncan said in a statement.

Boston Real Estate Blog Updated 2022

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HOME prices in the United States have been falling for nearly three years, and the decline may well continue for some time.

Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.

But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.

Read more: The New York Times