Optimism about mortgage rates wasn’t enough to get homebuyers off the sidelines
Housing sentiment was largely unchanged in August as consumers remained cautious despite some improvements in mortgage rates and home listings.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) showed a modest rise of 0.6 points to 72.1, but overall homebuying sentiment saw little change.
A notable 39% of consumers surveyed said they expect mortgage rates to decline over the next 12 months, up from 29% in July. However, this increased optimism didn’t translate into a more positive view of the housing market. Only 17% of respondents felt it was a good time to buy a home, unchanged from the previous month. By contrast, 83% said it remains a bad time to buy, up slightly from 82% in July.
“Despite significantly greater optimism that mortgage rates and home prices will move in a more favorable direction for potential homebuyers, most consumers remain apprehensive about the housing market and continue to point to the lack of affordability and supply as the chief reasons for their pessimism,” Fannie Mae deputy chief economist Mark Palim said in the report.
The August data also revealed significant regional differences in selling sentiment. While 65% of respondents nationally said it’s a good time to sell a home, there were notable variations depending on location. For instance, only 56% of respondents in the South felt it was a good time to sell, a 5% drop from the previous month. Meanwhile, selling sentiment remained much stronger in the Northeast (80%), Midwest (70%), and West (66%).
“This likely reflects in part the wide geographic variation in new home construction activity,” Palim explained. “In the regions that had a stronger construction response following the pandemic, our latest survey data suggests that sellers may be losing some of their negotiating power due to the increased supply.”
Read more: What’s swaying homebuying decisions?
While a growing number of consumers expect mortgage rates to drop, expectations around home prices were more mixed. The percentage of people who believe home prices will fall over the next year increased from 21% to 25%. However, 37% of respondents still expect home prices to rise, down from 41% in July.
In terms of mortgage rate expectations, optimism surged in August. A record 39% of respondents now expect rates to decline, while only 26% believe they will increase—a drop from 31% in July. This represents the highest level of consumer optimism regarding mortgage rates in the history of Fannie Mae’s survey.
The survey also found that a growing number of respondents are considering purchasing a home in the next three years, driven in part by declining mortgage rates.
“Some potential homebuyers may be feeling additional pressure to move for non-financial reasons,” Palim said. “Our recent Mortgage Understanding Survey showed that one-in-four respondents is actively considering purchasing a home in the next three years, and declining mortgage rates are likely to improve listing availability by further diminishing the so-called ‘lock-in effect.’”
The report also measured consumer sentiment on job security and household income. The percentage of respondents who were not concerned about losing their jobs rose slightly to 78%, while those worried about job loss remained stable at 21%.
Additionally, 14% of consumers said their household income had decreased over the past year, up from 11% in July, while only 17% reported an increase in income.
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