Fannie Mae Home Purchase Sentiment Index Gets a Boost From Lower Mortgage Rates in December

Fannie Mae on Monday (1-8-24) released its Home Purchase Sentiment Index® (HPSI) for December. The HPSI increased 2.9 points in December to a reading of 67.2, primarily due to a significant jump in the share of consumers expecting mortgage rates to move lower over the next 12 months. Year-over-year, the full HPSI was up 6.2 points.

In December, the HPSI reported a survey-high of 31% of consumers indicated that they expect mortgage rates to go down. The survey also reported that 31% expected mortgage rates to move higher, and 36% expected the rates to remain the same.

Consumers’ overall perceptions of homebuying conditions remained overwhelmingly pessimistic. However, this particular component of the HPSI ticked up slightly month-over-month, with 17% of consumers now indicating it is a “good time to buy” a home, compared to a survey-low of 14% in November.

In remarks accompanying the December HPSI, Fannie Mae Vice President and Chief Economist Mark Palim said:

“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year. 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. 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. Of course, that’s likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines. 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.”