Consumer Sentiment Hits 30-Month High as Mortgage Rate Optimism Grows

The Fannie Mae Home Purchase Sentiment Index (HPSI) report for September 2024 is in, and by the looks of it, consumer optimism has significantly improved. 

The overall index went up 1.8 points from August to 73.9—its highest level in over two years. 

The most likely reason for that is the general expectation among consumers that mortgage rates will continue on a downward trend over the next 12 months. 

According to Fannie Mae’s National Housing Survey for September, a record 42% of consumers expect rates to decline—up from 39% the previous month and 24% in June. This also compares to 31% who expect rates to remain the same and 27% who expect them to rise. 

Source: Fannie Mae

Also, nearly four in ten (39%) survey respondents expect home prices to increase in the next 12 months—up from 37% in August—shedding some light on why the improvement in overall consumer sentiment hasn’t yet translated into a boost in home sales. 

Overall perception of homebuying conditions went up a tick this month but is still not far from its all-time low, with less than one in five (19%) say it’s a “good time to buy a home.” On the other hand, 65% say it’s a “good time to sell.” 

The full index shows an increase of 9.4 points compared to September 2023. 

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. Mark Palim - Fannie Mae Senior Vice President and Chief Economist

Components of the HPSI

A closer look at the six main components of the HPSI shows the biggest year-over-year improvement in consumer sentiment regarding mortgage rates—and the biggest net negative change in home price outlook. 

Month over month, the biggest net positive was in “change in household income,” followed by “buying conditions” and “home price outlook (for the next 12 months).”

Source: Fannie Mae

Here’s a more detailed breakdown of September’s survey insights: 

• Good/Bad Time to Buy — The percentage of people saying it’s a good time to buy a home rose by two percentage points (ppts) to 19%, while those saying it’s a bad time to buy dropped from83% to 81%. The result was a 3-point increase in the net share, bringing it to -62% for September. 
• Good/Bad Time to Sell — The percentage of people saying it’s a good time to sell a home remained unchanged from the previous month (65%), while the percentage saying it’s a bad time to sell rose by 1 ppt to 35%. As a result, the net share of respondents saying it’s a good time to sell dropped 1 ppt month over month to 30%. 
• Home Price Expectations — The percentage of people saying home prices will increase in the next 12 months went up from37% to 39%, while the percentage saying home prices will decline went from 25% down to 23%. The share expecting home prices to remain the same held steady at 37%. The result was a net increase of 3 percentage points month over month to 16% saying home prices will go up in the next 12 months. 
• Mortgage Rate Expectations — The percentage of people saying mortgage rates will decline in the next 12 months increased from 39% in August to 42%, marking a new survey high. The percentage expecting rates to go up increased from 26% to 27%, while the share expecting them to remain the same dropped from 35% to 31%. As a result, the net share of those expecting rates to fall rose two percentage points to 15%, marking a second consecutive survey high—and the highest in NHS history!
• Job Loss Concern — The percentage of consumers saying they’re not concerned about losing their job in the next 12 months dropped 1 ppt from 78% to 77%, while the percentage saying they are concerned rose 1 ppt to 22%. The resulting net share of people not concerned about losing their job in the next 12 months fell 1 ppt to 56%. 
• Household Income — The share of consumers saying their household income is significantly higher compared to 12 months ago rose from 17% to 18%, while the share of those saying their household income is significantly lower fell from 14% to 11%. The share of those saying it’s about the same increased from 68% to 70%. The resulting net share of consumers saying their household income is significantly higher year over year increased 5 ppts month over month to 8%. 

Key Details: 

• The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 1.8 points in September to 73.9, its highest level in over two years, driven by record consumer optimism that mortgage rates will decline. 
• While 42% of consumers expect lower rates, only 19% believe it’s a good time to buy, and 65% think it’s a good time to sell. 
• Despite rate optimism, many still anticipate home price increases, impacting overall affordability.

Posted by Sarah Lentz | Oct 8, 2024 | Housing Market

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