With an expectation of mortgage rates to go down over the next 12 months, consumer sentiment increased in December despite overall pessimism toward home buying conditions.
A survey-high 31% of consumers say they expect mortgage rates to go down, while 31% expect them to go up and 36% expect rates to remain the same, according to the Fannie Mae Home Purchase Sentiment Index (HPSI).
The HPSI increased in December by 2.9 points to 67.2.The HPSI is up 6.2 points compared with the same time a year ago.
“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” says Mark Palim, vice president and deputy chief economist at Fannie Mae. “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. Notably, homeowners and higher-income groups reported greater rate optimism than renters; in fact, for the first time in our National Housing Survey’s history, more homeowners, on net, believe mortgage rates will go down than go up.”
The percentage of respondents who say it is a good time to buy a home increased from 14% to 17%, while the percentage who say it is a bad time to buy decreased from 85% to 83%. As a result, the net share of those who say it is a good time to buy increased 5 percentage points month over month, while the net share of those who say it is a good time to sell decreased 5 percentage points month over month.
Home price expectations leaned more hopeful as the percentage of respondents who say home prices will go up in the next 12 months decreased from 41% to 39%. The percentage who say home prices will go down remained unchanged at 24%, and the share who think home prices will stay the same increased from 35% to 36%. The net share of those who say home prices will go up in the next 12 months decreased 2 percentage points month over month.
“A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024. 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 continues.
“Of course, that’s likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines. Like many others, even if rates fall further, we continue to believe that affordability will be tempered in part by elevated home prices, especially for first-time home buyers, and we expect the pace of home sales improvement to be modest in 2024.”
The percentage of respondents who say they are not concerned about losing their job in the next 12 months decreased from 76% to 75%, while the percentage who say they are concerned increased from 23% to 24%. Month over month, the net share of those who say they are not concerned about losing their job decreased 3 percentage points. In December, the net share of those who say their household income is significantly higher than it was 12 months ago remained unchanged month over month.
