Consumers more optimistic on home buying than they've been in nearly 2 years

Consumers' bullish attitudes on the future direction of mortgage rates drove the Fannie Mae Home Purchase Sentiment Index to its highest level in almost two years.

The HPSI reached 70.7 last month, an increase of 3.5 points over December and up from 61.6 for January 2023. This is its highest level since March 2022 when it was 73.2.

For the second consecutive month, the largest share of respondents ever said they believed rates would go down throughout the coming year, at 36%. This compares with 28% that are of the opinion that rates would rise while 35% stated they will remain the same.

The consumers' views are in line with Fannie Mae's own economists, whose January projection called for mortgage rates to slip back under 6% by the end of the year. Freddie Mac's Primary Mortgage Market Survey in recent weeks has been steady in the 6.6% to 6.7% range for the 30-year conforming fixed rate loan.

"For the first time in our National Housing Survey's history, a greater share of consumers believe mortgage rates will decrease over the next year, rather than increase," Fannie Mae Chief Economist Doug Duncan said in a press release.

"Consumers also expressed greater confidence in their job situations this month, another sign that housing sentiment may continue to improve in 2024."Views on personal job security are also up significantly over December's survey, as 82% of respondents declared they are not concerned about losing their job in the next 12 months. That compared with 75% the previous month.

In his January forecast, Duncan retracted his prediction that the U.S. was headed for a recession, which would also benefit the housing market.

However, Americans are still concerned about an economic downturn, as 65% of those surveyed for Clever Real Estate worry a recession will take place this year, with 63% believing one is already here. But a year ago, 75% of those surveyed then felt the country was on the verge of a recession.

Roughly 40% of the 1,000 people queried in December thought the 2024 economy will be better than last year, while 52% believe an economic rebound will take place in the near future.

Even when Fannie Mae asked about the direction of the economy, 75% said it was on the wrong track, up from 70% in December.

Some of that pessimism over the economy, as well the ongoing inventory shortage likely spilled over into the response when Fannie Mae asked about whether now is a good time to buy a home. The share responding yes remained at a meager 17% month-to-month.

But those calling a good time to sell rose 3 percentage points, to 60%.

Attitudes regarding price movements also moderated, as the percentage looking for them to go up in the next 12 months decreased to 37% from 39%. Those thinking they will go down, also fell to 22% from 24%, while the unchanged category rose to 40% from 36%.

"However, while home affordability may improve if actual mortgage rates continue moving downward, other parts of the affordability equation have yet to ease or improve for consumers," Duncan said. "All in all, while a lower mortgage rate path supports our forecast for a gradual increase in housing demand and sales activity in 2024."

While not a part of the HPSI calculation, the survey did find that 58% of households believed it is difficult to get a mortgage, up from 57% both last month and one year ago. 

More than half, 51%, expect their financial situation to remain unchanged going forward for the next year, compared with 30% that believe it would get better and 19% stating it is likely to get worse.

It is becoming less expensive for potential home buyers to afford their house payments. February's ICE Mortgage Monitor, released on Feb. 5, noted it currently requires a $2,257 monthly principal and interest payment to purchase the median-priced home with 20% down and a 30-year fixed rate loan.

That was down nearly 10%, or $243, from the record high P&I payment set in October. But compared with the start of 2022, it was up $831 or 58%,However, according to ICE Mortgage Technology's (formerly Black Knight's) measurements, home prices were up another 5.6% annually.

"In recent months, we've seen improvement in rates, affordability, and for sale inventory, with monthly home price growth moderating on a seasonally adjusted basis," said Andy Walden, ICE vice president of enterprise research strategy, in a press release. "While we are still out of sync with historical norms on multiple fronts, each of those metrics have at least been moving in the right direction."