Potential Home Buyers Are More Optimistic on Housing Market for One Big Reason, Fannie Mae Says

Consumers expect mortgage rates to drop, so they’re feeling a lot more optimistic about the housing market, according to a Fannie Mae poll published Monday.

After the U.S. Federal Reserve’s rate increase last week, the Fed Chair signaled a potential pause in hikes. Rates dipped after the news, and economists are expecting mortgage rates to gradually decline over the course of this year, and into 2024.

Consumers see this as a good sign for mortgage rates. The monthly Fannie Mae Home Purchase Sentiment Index rose in April to the highest level since May 2022.

In April, 22% of consumers polled said they expect rates to go down, compared to just 12% last month.

The increase in overall home-buying sentiment is “primarily driven by consumers’ more optimistic mortgage rate expectations,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement.

People believe mortgage rates will fall over the next year, which “could be due to a combination of factors,” Duncan said, “including an awareness of decelerating inflation, market suggestions that monetary conditions will ease in the not-too-distant future, and, of course, actual mortgage rate declines during the month.”

The share of respondents who said it’s a good time to buy a home rose to 23% in April, from 20% the previous month.

But would-be buyers are still frustrated by how expensive it is to buy a home. Many respondents said they expect home prices to go up in the next 12 months. The share of those who believe in rising home prices was 37% in April, up from 32% the previous month.

High home prices

Even though buyers are feeling more optimistic in April, this may “prove to be temporary,” Duncan said, “as consumers continue to report uncertainty about the direction of home prices.”

High home prices are the chief reason why consumers believe it’s a bad time to buy a home, he noted.

The median price of an existing home was $375,700, as reported by the National Realtors Association in April. A new home was $449,800, according to the Census Bureau.

“Until affordability improves for a larger swath of the homebuying public,” Duncan added, “we believe home sales will remain subdued compared to previous years.”

The frenzied pace of home sales has slowed considerably after the Fed hiked interest rates around this time last year. Home sales fell 22% in March, as compared to the previous year, the NAR said.

“Housing has just switched from where it was like a full-on party with champagne to a more austere market,” Bess Freedman, CEO of Brown Harris Stevens, told MarketWatch in an episode of Barron’s Live.

With higher interest rates and historically high home prices, “people are much more cautious and everything is a lot more expensive.”

SOURCE: Realtor.com