Americans’ attitudes about buying a home are steadily improving.
In the latest national housing survey conducted by the government-backed Fannie Mae, respondents’ propensity to buy homes reached its highest levels in two years. The percentage of people who said they expect mortgage rates to decline in the next year hit an all-time high for the second straight month.
Despite these improvements, however, they are still not hopeful that accessibility will improve much in 2024.
Optimism about mortgage rates rises again
Fannie Mae’s Home Purchase Sentiment Index, a monthly measure of Americans’ feelings about buying homes, increased 3.5 points in January, mostly due to consumers’ improved sense of job security and of optimism about mortgage rates.
A record 36% of respondents said they expect mortgage rates to decline over the next 12 months. This is a continued improvement from December, when a previous record 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. Although officials have not yet said exactly when they will begin cutting rates, Chairman Jerome Powell said in a recent 60 minutes interview that audiences shouldn’t expect anything until after March.
The Fed doesn’t directly set mortgage rates, but the federal funds rate influences how mortgage lenders decide how much interest to charge. While mortgage rates still hover between 6% and 7%, they have seen small declines in recent weeks. The average 30-year fixed-rate mortgage decreased 0.06 percentage point to 6.63% in the week ending February 1.
Perspectives on housing affordability
Americans’ growing positivity about falling mortgage rates doesn’t necessarily mean they feel good about the housing market in general: Only 17% of respondents said it’s a good time to buy a home. Another 83% said it’s a bad time, the same percentage as the previous month.
The percentage of respondents who said they expect home prices to rise this year fell slightly from 39% to 37%. 22% of respondents said they expected prices to drop, while 40% said they would remain the same, slightly higher than the previous month.
Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a press release that affordability will still be out of reach for many this year. The percentage of people who think it’s a good time to buy has hovered around record lows lately, and fewer than 1 in 5 respondents said their income was significantly higher than the previous year.
Market activity saw a sharp slowdown in 2023 thanks to the combination of high interest rates and the highest home prices on record, causing inventory to decline nationwide. While more homes have come on the market this year, that’s still not enough to push conditions in homebuyers’ favor, according to data from listing site Realtor.com.
“Until we see a significant increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many families,” he said.
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