Consumer Housing Sentiment Reaches 2-Year High

Consumer sentiment toward the housing market hit a near two-year high in January. Fannie Mae’s Home Purchase Sentiment Index (HPSI) jumped 3.5 points to 70.7 in January, the highest mark since March 2022. The full index is up 9.1 points on a year-over-year basis.

Fannie Mae says the increase can be attributed to greater consumer confidence in job security and another large jump in the share of consumers expecting mortgage rates to decrease in the next 12 months.

More than 80% of consumers indicated they are not concerned about losing their job in the next 12 months, up from three-quarters of respondents in December. Additionally, a survey-high 36% of respondents indicated they expect mortgage rates to go down in the next 12 months, while another 35% said they expect rates to remain the same.

“Mortgage rate optimism increased markedly again in January, with a survey-high percentage of consumers anticipating mortgage rate declines over the next year,” Fannie Mae senior vice president and chief economist Doug Duncan says. “For the first time in our National Housing Survey’s history, a greater share of consumers believe mortgage rates will decrease over the next year, rather than increase.”

Despite improvements in outlook for the job market and mortgage rates, consumer outlook for home buying remained largely pessimistic. Only 17% of respondents said they believe it is a good time to buy a home.

“However, while home affordability may improve if actual mortgage rates continue moving downward, other parts of the affordability equation have yet to ease or improve for consumers,” Duncan says. “A large majority still think home prices will either increase or stay the same; the ‘good time to buy’ component continues to hover near its historical low; and fewer than 1 in 5 respondents indicated that their household income was significantly higher year over year, matching a survey low.”

The percentage of respondents who believe it is a good time to sell a home increased 3 percentage points to 60% in January, while the share who believe it is a bad time to sell decreased to 40% from 42%. A majority of consumers reported that they believe home prices will either increase or stay flat in 2024: 40% said they expect prices to stay the same, while 37% expect prices to increase in the next 12 months.

“All in all, while a lower mortgage rates 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 says.