Homebuyer sentiment is up, but for how long?
Consumers were considerably more upbeat about the housing market in September, but rising mortgage rates may put a damper on their enthusiasm.
Homebuyer sentiment reached its highest level in more than two years in September, but that may not last as mortgage rates continue to rise.
The Fannie Mae Home Purchase Sentiment Index jumped 1.8 points last month to 73.9, fueled by the expectation that mortgage rates will decline in the next 12 months.
Optimism around rates was at a survey high, according to Fannie Mae, with a record 42% of consumers saying they expect mortgage rates to decline — a significant increase since June, when only 24% anticipated a drop in rates. Just under a third of respondents expect rates to stay the same, while 27% think they'll go up in the next 12 months.
Overall sentiment around housing was mixed, however, with many respondents expecting home prices to go up, and only 19% indicating that it was a good time to buy.
Why the mood may change: Sentiment could quickly sour if the hoped-for declines in rates fail to materialize. Mortgage rates hit an all-year low at the end of September after the Federal Reserve cut interest rates by 50 basis points, but those declines didn't last for long.
Mortgage rates shot up on October 4 following a surprisingly strong jobs report, and they have continued to climb. Mortgage News Daily pegged the 30-year fixed-rate mortgage at 6.62% for Monday, Oct. 7, up from 6.24% a week ago.
While a strong labor market is good news for the housing market in the long term, the current rise in mortgage rates will likely put a damper on any potential fall season housing rally.
High prices continue to restrain sales: Even when rates were hovering closer to 6%, that wasn't translating into a surge in sales, said Mark Palim, chief economist at Fannie Mae. The agency is expecting existing home sales to be around a 30-year low at the end of 2024.
"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," Palim said.
The rise in rates may also prompt would-be sellers with locked-in low rates to delay putting their homes on the market. More than 84% of outstanding mortgages are below 6%, with more than 56% of mortgages below the 4% level, according to research done by Realtor.com.