Housing sentiment is a critical indicator of consumer confidence in the housing market, and according to Fannie Mae’s latest survey, it has reached its highest level in over two years. With mortgage rates expected to decline in the next 12 months, a growing number of consumers are feeling optimistic about the housing market’s future. Despite this optimism, challenges remain, particularly regarding high home prices. Fannie Mae’s Home Purchase Sentiment Index (HPSI) reveals important insights that shape today’s housing landscape.
Mortgage Rates and Housing Sentiment in 2024
In September 2024, Fannie Mae’s survey indicated a significant improvement in housing sentiment. This shift is largely driven by the growing belief that mortgage rates will fall in the coming months. In fact, the percentage of respondents who expect rates to decrease rose to 42% from 39% in August. This optimism reflects broader market conditions, as the Federal Reserve has started easing monetary policy after years of rate hikes.
Mark Palim, chief economist at Fannie Mae, emphasized that while consumers are excited about the prospect of lower mortgage rates, they continue to be concerned about high home prices. Palim noted that “a growing share are now pointing to high home prices rather than high mortgage rates as the primary sticking point for affordability.”
The Impact of Rising Home Prices
While housing sentiment is improving due to the expected drop in mortgage rates, home prices continue to be a barrier for many prospective buyers. According to Fannie Mae, the share of respondents who expect home prices to rise also increased, reaching 39% in September, up from 37% the previous month. This rise in home prices is putting pressure on affordability, even as the overall market sentiment improves.
Fannie Mae’s data shows that the median price of an existing home in August was $416,700, a 3.1% increase compared to the previous year. With fewer homes available at affordable prices, only 19% of consumers in the survey said it’s a good time to buy a house, while a striking 83% maintained that it’s a bad time to purchase.
Housing Sentiment Reflects Market Optimism but Faces Challenges
Despite these challenges, housing sentiment in 2024 has surged to its highest level since February 2022. Fannie Mae’s Home Purchase Sentiment Index rose 1.8 points in September to 73.9, its highest reading in over two years. This optimism is largely driven by expectations that the Federal Reserve’s easing of interest rates will eventually lead to lower mortgage rates, making homeownership more accessible for many.
However, existing-home sales are expected to hit their lowest annual total since 1995, signaling that the market is still in a recovery phase. High home prices and limited inventory continue to dampen home sales, even as consumers become more hopeful about falling mortgage rates.
What’s Next for Housing Sentiment?
The outlook for housing sentiment in 2024 appears cautiously optimistic. While mortgage rates are expected to decline, high home prices remain a concern for many. Fannie Mae’s survey offers a glimpse into consumer expectations, with more respondents feeling positive about the future but still wary of affordability issues. As the Federal Reserve continues to adjust monetary policy, it will be interesting to see how these dynamics evolve and shape the housing market in the coming months.
