Rising Home Prices, Rents may Motivate More Buyers

The convergence of expectations about both rising home prices and rising rents may motivate more consumers to purchase a home in the coming months according to Fannie Mae.  The company drew this conclusion from results of its October National Housing Survey released Wednesday morning.

The percentage of survey respondents who expect home prices to remain about the same ticked up two percentage points to 48 percent in the October survey while those expecting further price declines went from 11 to 10 percent, 13 percentage points lower than October 2011 and the lowest level since the survey's inception in June 2010.  While the percentage expecting price increases over the next twelve months declined from 37 percent to 36 percent the positive difference between those saying home prices will go up and those saying they will go down remained steady at a survey high of 26 percentage points.  The average price change expectation went from an increase of 1.5 percent in September to 1.7 percent in September.  Expected price changes have been in positive territory and steadily increasing since November 2011.   

Half of respondents expect rents to increase over the next 12 months, the highest proportion in the history of the survey, compared to 47 percent in the previous survey.  Only 3 percent expect rents to decline while 43 percent expect rents to be essentially unchanged, up from 42 percent in September.  Anticipated rent increases jumped 8 basis points in one month to an expected increase of 3.9 percent.

"This has been a year of steady growth in the percentage of consumers with positive home price expectations," said Doug Duncan, senior vice president and chief economist of Fannie Mae. "Increasing household formation, encouraged by an improving labor market, is adding additional momentum to the housing recovery and putting upward pressure on rental price expectations. Expected increases in both owning and renting costs may encourage more consumers to buy and add further strength to the housing recovery already under way."  

Seventy-two percent of respondents say it is a good time to buy, while 18 percent say it is a good time to sell, consistent with the trends seen over the past six months.

Consumers may be further propelled toward a purchase decision by expectations about interest rates.  The percentage of respondents expecting further rate decreases declined from 10 to 7 percent since the previous survey while those expecting the rates will increase in the next year went up by 4 percentage points to 37 percent.

When asked about the state of the economy, the share of respondents who say it's on the right track dropped to 38 percent, down 3 percentage points from last month. Conversely, those who say the economy is on the wrong track climbed 3 percentage points to 56 percent. The share of consumers who expect their personal financial situation to get better or stay the same over the next year remained essentially level at 43 percent and 40 percent, respectively.

The Fannie Mae Survey polls 1,001 Americans, both homeowners and renters, monthly via phone to assess their attitudes toward owning and renting a home, home purchase and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence.