Consumers Expect Mortgage Rates to Go Down

WASHINGTON – The Fannie Mae Home Purchase Sentiment Index HPSI) increased 2.9 points in December to 67.2, due primarily to a significant jump in the share of consumers expecting mortgage rates to go down over the next 12 months.

In December, a survey-high 31% of consumers indicated that they expect mortgage rates to go down, while 31% expect them to go up, and 36% expect rates to remain the same.

Although consumer perceptions of homebuying conditions remain overwhelmingly pessimistic, that particular component of the HPSI ticked up slightly month over month, with 17% of consumers now indicating it’s a good time to buy a home, compared to 14% last month, a survey low. Overall, the full index is up 6.2 points year over year.

 “Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” said 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.”

Palim continued: “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. 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 homebuyers, and we expect the pace of home sales improvement to be modest in 2024.”

Specific points from the survey include:

Good/Bad Time to Buy: 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.

Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home decreased from 60% to 57%, while the percentage who say it’s a bad time to sell increased from 40% to 42%. As a result, the net share of those who say it is a good time to sell decreased 5 percentage points month over month.

Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months decreased from 41% to 39%, while the percentage who say home prices will go down remained unchanged at 24%. The share who think home prices will stay the same increased from 35% to 36%. As a result, the net share of those who say home prices will go up in the next 12 months decreased 2 percentage points month over month.

Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 22% to 31%, while the percentage who expect mortgage rates to go up decreased from 44% to 31%. The share who think mortgage rates will stay the same increased from 34% to 36%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 22 percentage points month over month.

Job Loss Concern: 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%. As a result, the net share of those who say they are not concerned about losing their job decreased 3 percentage points month over month.

Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 19% to 20%, while the percentage who say their household income is significantly lower increased from 12% to 13%. The percentage who say their household income is about the same decreased from 68% to 67%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago remained unchanged month over month.

The Home Purchase Sentiment Index® (HPSI) distills information about consumers’ home purchase sentiment from Fannie Mae’s National Housing Survey® (NHS) into a single number. The HPSI reflects consumers’ current views and forward-looking expectations of housing market conditions and complements existing data sources to inform housing-related analysis and decision making. The HPSI is constructed from answers to six NHS questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions. The questions ask consumers whether they think that it is a good or bad time to buy or to sell a house, what direction they expect home prices and mortgage interest rates to move, how concerned they are about losing their jobs, and whether their incomes are higher than they were a year earlier.