Positive shift in homebuying sentiment linked to rate drops
Consumer sentiment in the housing market is experiencing a positive turnaround as mortgage rates begin to trend downward.
The latest Fannie Mae Home Purchase Sentiment Index (HPSI) climbed by 2.9 points to 67.2 in December, primarily driven by a growing belief among consumers that mortgage rates will decrease in the next 12 months.
A record 31% of survey participants in December expressed expectations that mortgage rates will fall, marking the highest percentage since the survey began. This optimism is echoed by an equal percentage of consumers anticipating rates will increase and 36% predicting stability in rates.
Although the overall perception of homebuying conditions remains largely pessimistic, there’s a slight increase in positivity. Now, 17% of consumers feel it’s a good time to buy a home, a marginal increase from the 14% reported last month, which was a survey low. Overall, the HPSI has seen a year-over-year growth of 6.2 points.
“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” said Mark Palim, deputy chief economist at Fannie Mae. “This significant shift in consumer expectations comes on the heels of the recent bond market rally and an already-significant downtick in 30-year mortgage rates, from their high of nearly 8% in early November to 6.62% as of this past week.”
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Palim noted that homeowners and higher-income groups are more optimistic about rate decreases compared to renters. For the first time in the survey’s history, more homeowners believe mortgage rates will decrease rather than increase.
Palim also suggested that this optimistic rate outlook could indicate consumer expectations of easing home affordability pressures in 2024. High mortgage rates have been cited as a primary reason for the current unfavorable home buying and selling conditions.
“A more positive mortgage rate outlook may incentivize some to list their homes for sale, helping increase the supply of existing homes in the new year,” he said.
However, Palim cautioned that any improvement in home sales would depend on an actual decline in mortgage rates and mentioned that affordability might still be an issue due to elevated home prices, particularly impacting first-time homebuyers.
“We expect the pace of home sales improvement to be modest in 2024,” Palim said.
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