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Optimism About Mortgage Rates Reaches a Record High: Fannie Mae
By Mary Ellen Cagnassola MONEY RESEARCH COLLECTIVE
Alas, affordability remains a hurdle for would-be homebuyers.
Americans’ attitudes about buying a home are steadily improving.
In the latest national housing survey from the government-backed corporation Fannie Mae, respondents’ homebuying sentiment hit its highest levels in two years. The share of people who said they expect mortgage rates to decline over the next year reached an all-time high for a second month in a row.
Despite these improvements, though, they’re still not hopeful that affordability will improve much in 2024.
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View RatesMortgage rate optimism ticks up again
Fannie Mae’s Home Purchase Sentiment Index, a monthly measurement of Americans’ feelings about homebuying, saw a 3.5-point increase in January — mostly due to improvements in consumers’ sense of job security and mortgage rate optimism.
A record-high 36% of respondents said they expect mortgage rates to fall in the next 12 months. That’s a continued improvement from December, when a previous record of 31% of respondents said the same.
The increase follows indications from Federal Reserve officials in December that the central bank will likely cut interest rates three times in 2024 in response to falling inflation. While officials haven’t pinpointed when exactly they’ll start slashing rates, Chairman Jerome Powell said in a recent 60 Minutes interview that the public shouldn’t expect anything until after March.
The Fed doesn’t directly set mortgage rates, but its federal funds rate influences how mortgage lenders decide how much interest to charge. Though mortgage rates are still hovering between 6% and 7%, they have made small declines in recent weeks. The average 30-year fixed-rate mortgage decreased .06 percentage points to 6.63% for the week ending Feb. 1.
Housing affordability outlook
Americans’ increasing positivity about mortgage rates going down doesn’t necessarily mean that they’re feeling good about the housing market overall: Only 17% of respondents said it’s a good time to buy a house. Another 83% said it’s a bad time, which is the same share as the previous month.
The percentage of respondents who said they expect home prices to increase this year dipped slightly from 39% to 37%. Twenty-two percent of respondents said they expect prices to go down, and 40% said they think they’ll stay the same, slightly higher than the previous month.
Doug Duncan, Fannie Mae’s senior vice president and chief economist, said in a news release that affordability will still be out of reach for many this year. The share of people who think its a good time to buy has been hovering near historical lows lately, and fewer than 1 in 5 respondents said that their income was significantly higher year-over-year.
Market activity saw a major slowdown in 2023 thanks to the combination of high interest rates and the highest home prices on record, causing a inventory to dwindle nationally. While more homes have hit the market so far this year, according to data from listing site Realtor.com, it’s still not enough to push conditions in homebuyers’ favor.
“Until we see a meaningful increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many households,” he said.
More from Money:
Here’s Where Mortgage Rates and Home Prices Are Heading, According to Zillow and Redfin
10 Cities Where Gen Zers Have the Best Shot at Buying Homes in 2024
As Negotiations Return to the Housing Market, Buyers Are Asking for Home Warranties
Mary Ellen (M.E.) Cagnassola joined Money as a reporter in 2022 following several years covering local communities in her home state of New Jersey and U.S. news for national brands, including Newsweek and People. Since receiving a B.A. in English and journalism and media studies from Rutgers University in 2017, M.E. has written about pretty much everything under the sun. As the versatile lead reporter for TAPinto Newark from 2019 to 2021, she won awards from the Center for Cooperative Media and the Society of Professional Journalists-New Jersey for her coverage of COVID-19, domestic violence, homelessness, eviction, police brutality, city government and more. She served on the board of the Society of Professional Journalists-New Jersey from 2021 to 2023. Her time at Money has afforded her newfound experience reporting primarily on Social Security policy, retirement, housing, lifestyle and employment. Influenced by her origins in community journalism, M.E.'s consumer finance coverage is informed by her dedication to service and equity. Some of her favorite topics that she has covered so far include the financial toll of caring for aging parents, sales taxes on diapers and period products, the booming personal loan industry and the customer service crisis at the Social Security Administration. Sometimes, M.E. makes TikTok videos for Money with her cat and Money’s in-house acting talent, Willow, from their home New York City.