Consumers are feeling far more negative about the housing market this winter, as home prices continue to rise and now mortgage rates move higher as well.

A monthly survey from Fannie Mae showed home purchase sentiment in January fell to its lowest level since May 2020, at the start of the pandemic. Weaker affordability is clearly the problem.  

Just one quarter of respondents said now is a good time to buy a home, a record low. On the flip side, 69% said now is a good time to sell.

Home prices are still gaining, and the gains are still accelerating . The latest measure showed prices nationally up 18.5% in December, according to CoreLogic. That’s up from an 18.1% annual gain in November. Home price appreciation more than doubled last year, averaging 15% for the full year, compared to just 6% appreciation in 2020.

“Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures,” said Frank Nothaft, chief economist at CoreLogic. “As we move further into 2022, economic factors – such as new home building and a rise in mortgage rates – are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.”

Prospective homebuyers Jerry and Tamara Carroll were touring an open house in Waldorf, Maryland, a few weeks ago and were already concerned about rising rates.

“Because when we started we were looking at 2.75% and now we’re hearing 4.1 possibly,” said Tamara.

Jerry described bidding wars at every property they’d seen, even as rates rise.

“We are pressed, and I’m sure other people are too, to try to get the best interest rate we can because it’s going up,” he added.

Respondents to the Fannie Mae survey also reported greater concerns about job stability and the future of mortgage rates.

Rates began rising at the start of January, and the average rate on the popular 30-year fixed loan is now 3.78, just over a full percentage point higher than it was one year ago, according to Mortgage News Daily. The rate is 58 basis points higher than the start of this year and will likely continue to climb as the Federal Reserve dials back its purchases and holdings of mortgage-backed bonds. That support of the mortgage market, just after the pandemic began, kept rates at record lows for over a year, fueling demand for housing and boosting prices.

Younger consumers are feeling most pessimistic about the housing market now. They expect both rates and home prices to rise further. Younger consumers are usually more optimistic about their own financial futures, but in January’s survey, that optimism waned.

“All of this points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed,” said Doug Duncan, chief economist at Fannie Mae.

Duncan is predicting a slowdown in activity as this year progresses.