A Brighter Outlook for Homebuyers: Fannie Mae's Latest Housing Sentiment

Despite the persisting challenges of low inventory and soaring prices, consumers are increasingly warming up to the idea of homeownership. Fannie Mae's Home Purchase Sentiment Index closed 2023 at 67.2, marking a notable rise of over six points from the previous year and nearly three points from November. This positive shift is primarily attributed to heightened consumer confidence in the prospect of mortgage rates.

The noteworthy surge in the Home Purchase Sentiment Index is fueled by consumers' positive expectations of a decline in mortgage rates within the next 12 months. In December, the percentage of respondents anticipating a decrease surged from 22% to 31%, reaching an all-time high in the survey. Simultaneously, an equal number of consumers anticipate an increase in rates, while just over a third believe they will remain stable. This unique occurrence marks the first time in the survey's 14-year history that more homeowners anticipate a decrease in mortgage rates rather than an increase.

Upon dissecting the findings between homeowners and renters, an even more optimistic outlook surfaces among homeowners. Mark Palim, Fannie Mae's deputy chief economist, suggests that the optimism among homeowners about declining mortgage rates could signal a potential easing of home affordability pressures in 2024. This shift in perception might encourage homeowners to consider listing their properties for sale, potentially contributing to an increased supply of existing homes in the forthcoming spring homebuying season.

Although the average 30-year fixed-rate mortgage concluded the year at 6.62%, down from its October peak of around 8%, homeowners with secured low mortgage rates may not be enthusiastic about selling. While 57% of consumers still view it as a favorable time to sell, this percentage saw a slight dip from 60% in November. Conversely, only 17% of consumers believe it's currently an opportune time to buy a home, showing a marginal improvement from November's low of 14%.



Despite a substantial year-over-year improvement, the overall index of 67.2 remains comparatively lower than in recent years. The pinnacle was reached at the end of 2019 with an index of 91.7, followed by a sharp decline at the onset of the pandemic. Nevertheless, consumers express confidence in their financial security, with 75% not concerned about job loss in the next 12 months, and 20% anticipating a notable rise in household income.

While consumers exhibit a more positive outlook on mortgage rates and financial security, their sentiment toward the real estate market remains cautious. Despite the potential for further decreases in rates, modest increases in home sales are anticipated, given that high home prices persist due to low inventory levels. The housing market continues to evolve, presenting both challenges and opportunities for prospective buyers and sellers navigating this dynamic landscape.