The Fannie Mae Home Purchase Sentiment Index (HPSI) shows record-high optimism, increasing 1.8 points in September to 73.9. The Federal Reserve’s 50 basis point rate cut has stirred more excitement among prospective homebuyers, 42% of whom are eager for the rate cuts to continue, up from 39% the month prior and 24% in June.
While the largest group of survey respondents anticipate rate cuts to continue, the rest are keeping their expectations low with 31% believing mortgage rates will stay the same and 27% who expect rates to increase.
"Increased positivity that mortgage rates will continue to fall has driven the HPSI to a 30-month high, but we've yet to see consumers' newfound rate optimism translate into a meaningful increase in home sales activity,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. “Instead, as we noted in our latest housing forecast, existing home sales are on pace to record their lowest annual total since 1995. 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.”
Regardless of which way rates move, consumers aren’t expecting affordability to improve any time soon. The HPSI shows a plurality of consumers expect home prices to increase over the next 12 months, which would offset some of the expected rate-driven improvement to affordability.
Presently, consumers' perception of homebuying conditions ticked up slightly this month, though the results were not far from its all-time low. Only 19% of respondents indicated it's a good time to buy a home, while 65% indicated that the sellers’ market is still in swing. The full index is 9.4 points per year.
"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," added Palim.
Housing sentiment among renters has improved, Palim noted, at approximately the same pace as homeowners. In the last three months, the share of renters believing it's a good time to buy a home has risen from 13% to 20%, while the share expecting mortgage rates to fall has risen 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 said.
The HPSI also found that consumer confidence regarding job security has ticked down. In the past year, consumer confidence grew by one percentage point to 18%, though the percentage who say they are concerned increased one percentage point as well (22%). Overall, the net share of those who say they are not concerned about losing their job decreased one percentage point month-over-month to 56%.
The percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 17% to 18%, while the percentage who say their household income is significantly lower decreased from 14% to 11%. The percentage who say their household income is about the same increased from 68% to 70%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago increased 5 percentage points month over month to 8%.
