Consumers temper their expectations for house price appreciation

The Fannie Mae National Housing Survey measures consumer attitudes about homeownership, the economy, and real estate

The National Housing Survey is a sentiment survey that provides investors insight into how consumers view the housing market. Homebuilders, home improvement retailers, and realtors will examine these reports to forecast activity. Importantly, it separates consumers’ attitudes about the economy in general, and their personal financial situation.

MR-expected home price appreciationEnlarge Graph

The survey covers specifics like expected rents, expected mortgage rates, whether it’s a good time to buy or sell, whether they would rent or buy if forced to relocate, or whether their financial situation will get better or worse.

On average, survey participants expect home prices to rise 3.4% over the next 12 months

This is the 23rd consecutive non-negative reading, and it’s rather prescient, given that real estate probably bottomed 18 months ago. While consumers seemed to have had the timing right, their price appreciation expectations were well below recent year-over-year gains reported by indices such as Case-Shiller, Radar Logic, CoreLogic, and FHFA.

Other highlights from the report:

  • 55% of respondents expect home prices to increase over the next 12 months, while 7% expect declines
  • On average, respondents expect rents to increase 4.1%
  • 44% expect their household income to be significantly higher in the next 12 months
  • 71% believe now is a good time to buy

Implications for homebuilders

The overall tenor of the release is that consumers are reasonably constructive on the housing market. They are distinctly lukewarm about their own personal financial situations—44% expect their personal financial situation to get better in the next 12 months and 12% expect it to get worse. In addition, 57% believe the economy is on the wrong track. In other words, consumers don’t seem to be in much of a mood to go shopping for their dream home.

That said, homebuilders such as KB Home (KBH), Lennar (LEN), PulteGroup (PHM), Standard Pacific (SPF), and Toll Brothers (TOL) have been so depressed for so long that any improvement, no matter how small, will have an outsized effect on their results. Low household formation numbers haven’t been based on demographics. They have been the result of a difficult job market for new graduates. This represents pent-up demand, and it will eventually be released. Even in difficult economic times, people still get married, have kids, and leave home or the roommates. Housing starts have been at severely depressed levels since 2008. But even if sentiment isn’t great, homebuilders may still be in a good place.