Despite the improved outlook for mortgage rates, a near record-low level of respondents believe it is a good time to buy a home, according to the Fannie Mae Home Purchase Sentiment Index.

Buoyed by the belief that mortgage rates will decline over the next 12 months, housing confidence inched higher in September.

The Fannie Mae Home Purchase Sentiment Index (HPSI) rose by 1.8 points to 73.9 in September, the index’s highest reading in more than two years. The full HPSI is up 9.4 points on a year-over-year basis.

In September, a record 42% of surveyed consumers said they expect mortgage rates to decline in the next 12 months, up from 39% in August and 24% as recently as June. Just 27% of respondents believe mortgage rates will rise in the next 12 months.

The improved sentiment toward mortgage rates is coupled with increased pessimism toward home prices, according to Fannie Mae. Thirty-nine percent of respondents believe home prices will increase in the next 12 months compared to just 23% who believe prices will decline.

“Increased positivity that mortgage rates will continue to fall has driven the HPSI to a 30-month high, but we’ve yet to see consumers’ newfound rate optimism translate into a meaningful increase in home sales activity,” says Fannie Mae senior vice president and chief economist Mark Palim. “Instead, as we noted in our latest housing forecast, existing home sales are on pace to record their lowest total since 1995. This signals to us that consumers are paying attention to the easing interest rate environment but still feel stymied by the considerable run-up in home prices over the last four years.”

Perceptions of home buying conditions improved marginally in September but remain close to all-time low levels. Just 19% of respondents indicated it was a good time to buy a home in September. Conversely, 65% of consumers think it is a good time to sell a home.

“Although most consumers continue to think it’s a ‘bad time’ to buy a home, the recent shift in attitude toward mortgage rates is pushing overall housing sentiment higher, and a growing share are now pointing to high home prices rather than high mortgage rates as the primary sticking point for affordability,” Palim says.

Palim says housing sentiment among renters—a common source of first-time buyers—has improved at approximately the same pace as homeowners.

“Over the last three months, the share of renters believing it’s a good time to buy a home has risen from 13% to 20%, while the share expecting mortgage rates to fall has risen from 16% to 30%,” Palim says. “While these numbers are still relatively low, we think the improvement may signal that some potential home buyers who have been waiting for mortgage rates to come down may be closer to coming off the sidelines, despite their ongoing concerns about home prices.”

The HPSI indicates the percentage of respondents who are not concerned about losing their job in the next 12 months decreased one percentage point to 77% in September. The percentage of respondents who say their household income is significantly higher than it was 12 months ago increased one percentage point to 18%.

By Vincent Salandro October 07, 2024