Fannie Mae's Home Purchase Sentiment Index (HPSI) experienced a notable increase of 2.9 points in December, reaching a score of 67.2. This positive shift can be attributed primarily to a significant surge in the number of consumers who anticipate mortgage rates to decrease over the next year.
The latest HPSI report revealed that 31% of surveyed consumers expected mortgage rates to decline, marking a survey-high for this category. In contrast, 31% of respondents anticipated rates to rise, and 36% believed rates would remain stable.
While the overall sentiment regarding homebuying conditions remained predominantly pessimistic, there was a slight uptick in this specific component of the HPSI. In December, 17% of consumers expressed that it was a good time to buy a home, compared to the previous month's 14%, which was a survey low.
The HPSI, which provides insights into consumer perceptions related to housing and mortgage market conditions, showed an overall increase of 6.2 points when compared to the same period the previous year.
"Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year," Fannie Mae Vice President and Deputy Chief Economist Mark Palim said. "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."
One of the most significant changes observed in the HPSI was the sentiment regarding the timing of buying homes. The percentage of respondents who deemed it a good time to purchase a home increased from 14% to 17%. Simultaneously, those who felt it was a bad time to buy decreased from 85% to 83%. This shift led to a five-percentage point increase in the net share of individuals who considered it a good time to buy compared to the previous month.
"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," Palim said. "Of course, that's likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines."
Opinions regarding selling homes exhibited mixed sentiments. The percentage of respondents who believed it was a good time to sell a home decreased from 60% to 57%, while the percentage perceiving it as a bad time to sell increased from 40% to 42%. Consequently, the net share of those who viewed it as a favorable time to sell dipped by five-percentage points compared to the previous month.
When asked about their expectations for home prices in the next 12 months, 39% of respondents believed prices would rise, a slight decrease from the previous month's 41%. Meanwhile, 24% expected home prices to drop, with 36% anticipating them to remain unchanged. This resulted in a two-percentage point decrease in the net share of respondents expecting home prices to increase in the coming year.
A notable shift in consumer sentiment was observed in the expectations surrounding mortgage rates. The percentage of respondents predicting a decrease in mortgage rates over the next year surged from 22% to 31%. Conversely, those expecting rates to rise decreased from 44% to 31%, with 36% believing rates would remain unchanged. This led to a substantial 22-percentage point increase in the net share of respondents who anticipated lower mortgage rates in the next 12 months compared to the previous month.
Concerns about job security showed a slight increase, with 24% of respondents expressing worry about losing their jobs in the next year, up from the previous month's 23%. However, the majority (75%) remained unconcerned about job loss. This resulted in a three-percentage point decrease in the net share of respondents feeling secure about their employment situation.
Regarding household income, 20% of respondents believed their income had significantly increased compared to the previous year, a slight rise from the previous month's 19%. Conversely, 13% felt their income had decreased significantly, up from 12%. The majority (67%) stated their household income remained about the same. As a result, the net share of those reporting significantly higher household income remained unchanged compared to the previous month.
