Consumer sentiment up as mortgage rate optimism hits record high
Fannie Mae’s monthly survey found that, for the first time, a greater share of consumers expects rates to fall in the next 12 months.
Key points:
- The Home Purchase Sentiment Index jumped to the highest level in nearly two years last month.
- A big driver: consumer expectations that mortgage rates will fall, plus more confidence in job security.
- It’s still not a good time to buy, said survey respondents, with many expecting home prices to keep rising.
More consumers are warming up to the idea of buying a new home, but they still want to see mortgage rates go down, according to the latest consumer sentiment survey from Fannie Mae.
Fannie Mae's Home Purchase Sentiment Index rose 3.5 points last month, primarily because more of those surveyed expect mortgage rates to decrease. Another factor: Increased confidence in job security.
The January sentiment index was 70.7, the highest level since March 2022 — a time when the average 30-year mortgage rate was around 4%.
Consumers feeling encouraged about mortgage rates, employment
When Fannie Mae conducted its sentiment survey three months ago, and mortgage rates were still hovering near 8%, only 22% of consumers said they expected mortgage rates to drop. By December, they were feeling much better, with an equal number of respondents (31%) expecting rates to rise, or fall, in the next 12 months.
And now, in this latest survey, 36% of respondents — an all-time high — believe mortgage rates will go down in the next 12 months, while just 28% expect rates to rise. It's the first time in the survey's history that a greater share of consumers believes rates will come down, said Doug Duncan, Fannie Mae's chief economist.
The report also found that fewer consumers are worried about staying employed: 82% of respondents said they are not concerned about losing their job in January, up from 75% in December.
A good time to buy? Not yet, say consumers
While the overall index shows improving consumer confidence, most of those surveyed still don't think it's a good time to buy a home due to a lack of inventory and rising prices. Only 17% believe now is a good time to buy, which was unchanged from December but a slight improvement over November's all-time low of 14%.
When it comes to home prices, 37% expect prices to go up, while 22% expect them to go down in the next 12 months. The largest share (40%) believe home prices will stay the same.
"All in all, 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," Duncan said.
While consumers are expecting mortgage rates to go down in the next 12 months, that may not happen right away. 30-year rates have hovered in the 6.6% range for the first six weeks of 2024 as the economy, particularly the labor market and inflation, is still too hot for the Federal Reserve to consider rate cuts.