Daily Spotlight: Housing Sentiment Slumps

Summary

Mortgage rates near 7% are pushing prospective buyers to the sidelines and could turn housing to a drag on 2Q GDP after a strong contribution to 1Q growth. “Millions of potential homebuyers have been priced out of the market by elevated home prices and interest rates,” according to The State of The Nation’s Housing report, which was published yesterday by Harvard’s Joint Center for Housing Studies. Fannie Mae’s Home Purchase Sentiment Index for May dropped by 2.5 points to an all-time survey low of 69.4. Just 14% of consumers said that it is a good time to buy a home, down from 20% in April. Doug Duncan, Chief Economist at Fannie Mae, said “While many respondents expressed optimism at the beginning of the year that mortgage rates would decline, that simply hasn’t happened, and current sentiment reflects pent-up frustration with the overall lack of purchase affordability.” Based on the June 20 GDPNow estimate from the Atlanta Fed, residential fixed investment is expected to be a small drag (about 5 basis points) on 2Q GDP after contributing 57 basis points to GDP growth in 1Q. Residential fixed investment is poised to decline by an annualized 1.3% in 2Q after 15.4% growth in 1Q, according to the Nowcast. Yesterday, the Commerce Department reported May Housing Starts of 1.28 million at a seasonally adjusted annual rate, down from 1.58 million year earlier. This morning, we expect the National Association of Realtors to report May Existing Home Sales of 4.10 million (SAAR), down fr

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