Fannie Mae's index of homebuying sentiment increased 0.7 points in October to 74.6, pushing the measure of consumer confidence to its highest level since February 2022 and significantly higher than the all-time low recorded two years ago.
Despite mortgage rates returning to six-month highs in October after dropping to six-month lows in September, the share of consumers who think it’s a good time to buy a home increased to 20%, while the share who think it’s a good time to sell a home declined to 64%. That optimism may not hold, however.
“In fact, the share citing mortgage rates as the primary driver of their homebuying pessimism declined again this month; however, since the fielding of the survey primarily in the first half of October, mortgage rates moved sharply higher, which may serve to suppress some of the recently observed rate optimism," said Fannie Mae Senior Vice President and Chief Economist Mark Palim.
How mortgage rates respond to the outcome of the U.S. presidential election also stands to influence consumer attitudes. Multiple years of rising housing costs — from elevated mortgage rates to rapid home price gains to increased home insurance and property tax rates — have left many sidelined borrowers hunting for homes for more than a year.
As of early October, two-thirds (66%) of sidelined homebuyers reported that housing-related policy "is important" in who they vote for in November’s election. Executives from top mortgage lenders have warned that meaningful mortgage rate relief may still be quarters away.
Still, consumers continue to expect home prices to rise and mortgage rates to fall, Fannie Mae's Home Purchase Sentiment Index noted, with the latter component hitting another survey high this month. The personal finance components remained fairly flat month over month, with fewer consumers expressing job loss concerns and slightly more indicating that their household income fell year over year.
October's distorted employment data clouded observers end-of-year forecasts for the pace of rate cuts and easing affordability. Nevertheless, the Federal Reserve chose to lower its benchmark rate by 25 basis points at the conclusion of the Federal Open Market Committee's (FOMC) November meeting, Wednesday.
"One effect of the prolonged period of relatively high home prices of the past four years is that we are seeing a slowly growing preference to rent rather than buy on consumers’ next move," Palim added. "With rent growth expected to remain modest in 2025, more consumers may be seeking – and finding – attractive deals in the rental market as they continue saving toward a future home purchase.”
As lock-in effects persist, an era of concentrated purchase demand among first-time homebuyers overlaps with an era of increasing unaffordability, tightening a homebuying bottleneck among younger shoppers underscored by tripling rentership rates.
With Gen Z’s oldest members entering the workforce and millennials in prime first-time homebuying age, recent figures showed typical homebuyers had lost $33,000 in purchasing power as mortgage rates swung upward during the second half of October, as Palim noted.
