Lower Mortgage Rates Send Fannie Mae Home Purchase Sentiment Index Higher in September

On Monday, Fannie Mae released the results of its Home Purchase Sentiment Index® (HPSI) for September. The HPSI increased 1.8 points in September to a reading of 73.9, its highest level in more than two years. Fannie Mae attributes the increase in the HPSI to consumers reporting survey-high optimism that mortgage rates will decline over the next 12 months.

In September, a record 42% of consumers said they expect mortgage rates to decline, up from 39% the month prior and 24% in June. This compares to 31% who expect mortgage rates to stay the same and 27% who expect rates to increase. However, a plurality of consumers also indicated that they expect home prices to increase over the next 12 months, which would offset some of the expected rate-driven improvement to affordability.

Respondents’ perception of homebuying conditions ticked up slightly this month but remains not far from its all-time low, with only 19% indicating it’s a “good time to buy” a home. On the flip side, 65% of consumers think it’s a “good time to sell” a home. The full index is up 9.4 points year-over-year.

Adding background and analysis to the report, Fannie Mae Senior Vice President and Chief Economist Mark Palim said:

“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. 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. Instead, as we noted in our latest housing forecast, existing home sales are on pace to record their lowest annual 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.

Notably, housing sentiment among renters, a common source of first-time homebuyers, 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%. While these numbers are still relatively low, we think the improvement may signal that some potential homebuyers 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.”