Fannie Mae’s home purchase sentiment index declined 2.7 points in October.

A net share of 21% of Americans say now is a good time to buy a home.

The U.S. housing market is on shaky ground as consumer sentiment begins to sour.

America’s two-speed housing recovery is about to lose steam as more potential homebuyers say now is not a good time to purchase real estate.

Fannie Mae’s latest sentiment indicator paints a bleak picture of the U.S. housing market even as the Federal Reserve continues to tinker with interest rates.

Fannie Mae Survey Reveals Troubling Trend Among Homebuyers

The Federal National Mortgage Association, commonly known as Fannie Mae, released the October edition of its Home Purchase Sentiment Index (HPSI) on Thursday. HPSI is considered one of the most comprehensive attitudinal surveys of U.S. homebuyers.

In October, HPSI declined 2.7 points to 88.8, representing a further retreat from the record high set in August. Although Fannie’s report struck an optimistic tone, alleging that “home purchase sentiment remains robust,” more Americans reported that now is a bad time to buy a home.

The net share of Americans who said now is a ‘good time to buy’ real estate stands at 21% (‘net share’ explained further at the article’s end). The percentage of Americans who say now is a ‘good time to sell’ is a net share of 41%.

Sentiment is souring over affordability concerns as more Americans fail to come up with down payments on their first home. Much of that is due to dwindling housing supply as building permits and new construction projects continue to decline. The net effect is higher prices for available housing stock.

At the same time, potential buyers are becoming more convinced that the runaway growth in housing costs cannot be sustained for much longer. As a result, “the net share of consumers expecting home prices to increase over the next 12 months has fallen to its lowest reading in seven years,” says Doug Duncan, Fannie Mae’s senior VP and chief economist.

Housing Slowdown Gathers Pace

The U.S. housing market was showing signs of a soft landing all the way back in 2014 when mortgage rates rebounded from their post-crisis lows. Now, ‘soft landing’ appears to be an understatement as debt-laden consumers can’t seem to qualify for a mortgage big enough to buy the house they want.

According to Freddie Mac, another government-sponsored enterprise (GSE), mortgage rates have been in decline for much of 2019 even before the Federal Reserve initiated its latest round of rate cuts. Yet, data on U.S. home sales have been remarkably inconsistent, with the sale of previously-owned homes and new residential property declining sharply throughout the year.

This time last year, the average 30-year fixed-rate mortgage was hovering close to 5%. The rate has fallen all the way back down to 3.69% as of Nov. 7, yet housing troubles persist.

Fannie’s misplaced optimism about the housing market is largely tied to declining mortgage rates and a strong labor market. But if the labor market and economy were so strong, the Fed wouldn’t be desperately trying to prolong the business cycle and avoid recession by keeping interest rates artificially low. Either the economy is strong and interest rates need to rise, or the economy is in dire need of help and rates need to be cut. It’s clear by the Fed’s actions that the latter is true. Unfortunately, policymakers don’t have the same ammunition they did back in 2008 when they engineered the post-crisis recovery.

Even if rates go back down to zero, income and wages aren’t rising fast enough to keep up with the multi-year spike in housing prices. This is true even if consumers’ perception about a price slowdown comes true. On top of that, the average American household now carries more than $137,000 in debt, a nearly threefold increase from just 20 years ago.

Disclaimer 11/09/2019: The article has been updated to reflect the net share figures of Americans’ sentiment. As explained by Matthew Classick of Fannie Mae in an email to CCN.com: “That 21% is calculated by subtracting the percentage of people who said it was not a good time to buy a home (36%) from the percentage of people who said it was a good time to buy a home (57%).”