Although consumer confidence in the housing market remained low overall in December, consumers indicated that they have greater confidence that mortgage rates will decrease in the months to come, providing some optimism to an otherwise gloomy outlook, according to Fannie Mae’s Home Purchase Sentiment Index (HPSI).
The percentage of respondents who say mortgage rates will go down in the next 12 months increased to 31%, up from 22% in November.
What’s more, the percentage who expect mortgage rates to go up decreased to 31%, down from 44% the previous month.
The share who think mortgage rates will stay the same increased to 36%, up from 34%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 22 percentage points month over month.
The increase in the Mortgage Rates category boosted the overall index score to 67.2, an increase of 2.9 points compared with November.
“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” says Mark Palim, vice president and 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 percent in early November to 6.62 percent as of this past week.
“Notably, homeowners and higher-income groups reported greater rate optimism than renters; in fact, for the first time in our National Housing Survey’s history, more homeowners, on net, believe mortgage rates will go down than go up,” Palim adds.
The percentage of respondents who say it is a good time to buy a home increased to 17%, up from 14% the previous month, while the percentage who say it is a bad time to buy decreased to 83%, down from from 85%. As a result, the net share of those who say it is a good time to buy increased 5 percentage points month over month.
The percentage of respondents who say it is a good time to sell a home decreased to 57%, down from 60%, while the percentage who say it’s a bad time to sell increased to 42%, up from from 40%. As a result, the net share of those who say it is a good time to sell decreased 5 percentage points month over month.
The percentage of respondents who say home prices will go up in the next 12 months decreased to 39%, down from from 41% the previous month, while the percentage who say home prices will go down remained unchanged at 24%. The share who think home prices will stay the same increased from 35% to 36%. As a result, the net share of those who say home prices will go up in the next 12 months decreased 2 percentage points month over month.
“A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024,” Palim says. “Homeowners have told us repeatedly of late that high mortgage rates are the top reason why it’s both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may incent some to list their homes for sale, helping increase the supply of existing homes in the new year.
“Of course, that’s likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines,” he adds. “Like many others, even if rates fall further, we continue to believe that affordability will be tempered in part by elevated home prices, especially for first-time homebuyers, and we expect the pace of home sales improvement to be modest in 2024.”
Photo: Ian Taylor