Tracking Housing Sentiment: The Fannie Mae National Housing Survey (Part 3 of 4)
Pros are more bullish on house prices
The latest survey shows that consumers expect home price appreciation to increase by 2.6% over the next 12 months. This is down 20 basis points month-over-month and up 10 basis points year-over-year. The 2.5% expected home price appreciation a year ago met with high single-digit returns in most indices, including the Federal Housing Finance Agency (or FHFA) Home Price Index or the Case-Shiller Home Price Index.
Unfortunately, Fannie Mae wasn’t conducting these surveys during the go-go days of the housing bubble. It would have been very interesting to see what people thought home prices would do. Interestingly, even as prices were falling, consumers were “calling the bottom” and expecting modest home price appreciation.
The 2.6% home price expectation is much lower than the 6%–7% forecast we’re seeing out of the National Association of Realtors and the mid-single-digit forecast we’re seeing from most Wall Street professionals. Lingering sentiment from prior market moves is typical. Most people didn’t believe the declines early in the bear market, so we shouldn’t be surprised that people don’t believe we’re now in a bull market for homes.
Implications for homebuilders
Whether we want to admit it or not, a home is an investment. The bear market disabused people of the notion that home prices only go from the bottom left to the top right of the chart. As a result, many people began to believe that a home is simply a place to live and not an investment.
However, homebuilders such as Lennar (LEN), PulteGroup (PHM), Toll Brothers (TOL), and D.R. Horton (DHI) need people to believe real estate is a sensible investment and that home price appreciation will continue.
Investors who are interested in trading the homebuilding sector should look at the SPDR homebuilder ETF (XHB).
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