Consumers, feeling confident about job security, are optimistic about mortgage rates dropping or remaining the same, according to a new report released today by Fannie Mae. It’s the most upbeat sentiment recorded in almost two years, but a strong sense of pessimism exists about this being a good time actually to buy a home.
The government service entity’s Home Purchase Sentiment Index (HPSI) increased 3.5 points in January to 70.7, its highest level since March 2022, due primarily to increased consumer confidence in job security and another significant jump in the share of consumers expecting mortgage rates to decrease. In January, 82% of consumers indicated they are not concerned about losing their job in the next 12 months, up from 75% last month. Additionally, an all-time survey-high 36% of respondents indicated that they expect mortgage rates to go down in the next 12 months, while 28% expect them to go up, and 35% expect rates to remain the same. Overall, the full index is up 9.1 points year over year.
However, consumer perceptions of homebuying conditions remain overwhelmingly pessimistic, with only 17% of consumers indicating it’s a good time to buy a home. On the other hand, not all homebuyers are feeling negative thoughts. In the latest data from the Mortgage Bankers Association, mortgage applications increased 3.7% from the previous week.
“Mortgage rate optimism increased markedly again in January, with a survey-high percentage of consumers anticipating mortgage rate declines over the next year,” said Doug Duncan, Fannie Mae chief economist. “For the first time in our National Housing Survey’s history, a greater share of consumers believe mortgage rates will decrease over the next year rather than increase. Consumers also expressed greater confidence in their job situations this month, another sign that housing sentiment may continue to improve in 2024.”
Duncan continued: “However, while home affordability may improve if actual mortgage rates continue moving downward, other parts of the affordability equation have yet to ease or improve for consumers. A large majority still think home prices will either increase or stay the same; the ‘good time to buy’ component continues to hover near its historical low; and fewer than one-in-five respondents indicated that their household income was significantly higher year over year, matching a survey low."
“All in all," he concluded, "while a lower mortgage rate path supports our forecast for a gradual increase in housing demand and sales activity in 2024, until we see a meaningful increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many households.”
