Consumer housing sentiment has surged
Consumer optimism that mortgage rates will fall over the next year has pushed housing confidence to a 30-month high, according to Fannie Mae.
The latest Fannie Mae Home Purchase Sentiment Index (HPSI) rose 1.8 points in September to 73.9, its highest level since 2021. Yet, despite this renewed confidence, the increase in positivity has yet to translate into a significant rise in home sales.
A record 42% of survey respondents believe mortgage rates will decline over the next 12 months, up from 39% in August and 24% in June. Meanwhile, 31% expect rates to remain unchanged, and 27% think they will increase. This growing optimism about rate cuts is helping to boost overall housing sentiment.
"Although most consumers continue to think it's a 'bad time' to buy a home, the recent shift in attitude toward mortgage rates is pushing overall housing sentiment higher, and a growing share are now pointing to high home prices rather than high mortgage rates as the primary sticking point for affordability," Fannie Mae chief economist Mark Palim said in the report.
Roughly 39% of respondents expect home prices to rise over the next year, which would dampen some of the affordability benefits from lower mortgage rates. That’s up from 37% in August. Those expecting prices to fall dropped from 25% to 23%, while 37% expect prices to remain the same.
Although the HPSI spiked to a 30-month high, Palim said we've yet to see consumers' newfound rate optimism translate into a meaningful increase in home sales activity.
“Instead, as we noted in our latest housing forecast, existing home sales are on pace to record their lowest annual total since 1995,” he added. “This signals to us that consumers are paying attention to the easing interest rate environment but still feel stymied by the considerable run-up in home prices over the last four years."
Only 19% of respondents said it's a good time to buy a home, up 2% from the previous month but still near record lows. Meanwhile, 65% of consumers feel it's a good time to sell, which has remained unchanged since August.
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Housing sentiment among renters has also improved at a similar pace to that of homeowners. Over the last three months, the percentage of renters who believe it’s a good time to buy a home increased from 13% to 20%, while the share expecting mortgage rates to fall jumped from 16% to 30%.
"While these numbers are still relatively low, we think the improvement may signal that some potential homebuyers who have been waiting for mortgage rates to come down may be closer to coming off the sidelines, despite their ongoing concerns about home prices," Palim noted.
The HPSI report also touched on other key factors impacting consumer sentiment. Concern about job security remained relatively steady, with 22% of respondents worried about losing their job in the next 12 months, while 77% expressed no concerns.
In terms of income, 18% of respondents reported that their household income was significantly higher than it was a year ago, up from 17% in August. Meanwhile, those reporting a significantly lower household income decreased from 14% to 11%.
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