US Housing Sentiment Edges Higher in January Even as Affordability Concerns Grow

On Friday, Fannie Mae released the results of its Home Purchasing Sentiment Index (HPSI) for January. The HPSI increased 0.3 points to a reading of 73.4, recovering slightly after falling in December for the first time since July. Year-over-year, the HPSI was up 2.7 points.

Improved consumer optimism about homebuying and home-selling conditions, along with stronger expectations of rising home prices over the next year, drove the increase. However, after a surge in mortgage rate optimism in the second half of 2024, January saw a 13-percentage-point drop in the net share of consumers expecting rates to decline over the next 12 months. Meanwhile, the share of consumers anticipating higher rental prices rose 8 percentage points from last month to 65%.

In remarks accompanying the report, Fannie Mae Vice President of Multifamily Economics and Strategic Research Kim Bentancourt said:

“Consumers seem increasingly pessimistic that housing affordability conditions will improve across the board, as a growing share expects home prices, rent prices, and mortgage rates will all go up. The lower optimism toward the mortgage rate outlook was largely expected, as rates have continued to stay elevated and even crossed the 7% threshold in mid-January. As noted in our latest forecast, we currently expect mortgage rates to end 2025 around 6.5%, relatively little changed from where we are today, which will likely continue to hinder relief for housing affordability and home sales activity.

On the rental side, consumers have indicated a sharply growing expectation over the past two months that rent prices will increase. This mirrors our expectation that multifamily rents will grow between 2.0% and 2.5% this year—up from an estimated 1.0% last year. Even though it remains relatively cheaper for consumers to rent than buy in nearly every US metro, we expect affordability issues will remain a real challenge for both renters and homeowners alike for the foreseeable future.”