WASHINGTON—The consumers are expecting mortgage rates to decline over the next 12 months can be seen in the latest Fannie Mae Home Purchase Sentiment Index (HPSI), which increased 2.9 points in December to 67.2.
According to Fannie Made, 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. Fannie Mae said that 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, Fannie Mae said.
‘Dramatic’ Increase
“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” Mark Palim, vice president and deputy chief economist at Fannie Mae, said in a statement. “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.
“A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024,” Palim continued. “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.
Role of Home Prices
“Of course, that’s likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines,” Palim added. “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.”
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