Even as hopes for lower mortgage rates and greater affordability got quashed, home buying sentiment managed to rebound last month.
Growing optimism among both buyers and sellers, along with expectations for price appreciation, pushed Fannie Mae's Home Purchase Sentiment Index in January upward for the fifth time in the past six months. The index came in at a reading of 73.4, up 0.3 points from 73.1 in December.
Compared to January 2024, Fannie Mae's HPSI also finished higher by 2.7 points from a score of 70.7.
But optimism that rates
"The lower optimism toward the mortgage rate outlook was largely expected, as rates have continued to stay elevated and even crossed the 7% threshold in mid January," said Kim Betancourt, vice president of multifamily economics and strategic research at Fannie Mae, in a press release.
The net percentage of consumers expecting rates to decrease in the coming 12 months plunged to 3% in January, compared to 16% in December. In its most
Sentiment surrounding buying and selling conditions both improved marginally from December to drive the index higher. Despite the uptick in positive purchase sentiment, the net share of consumers calling it a bad time to buy still represented a majority of 55%. Meanwhile, 28% thought it was a good time to sell.
Home price expectations
While consistent price increases in 2024 may have resulted in improved sellers' sentiment, they have hampered efforts to bring affordable options into the market for buyers. A net share of 20% of the respondents said housing costs will head even higher this year, reflecting a nine percent increase in the number of people believing so compared to a month earlier.
The most recent data was also compiled prior to the announcement of U.S. import tariffs this month, a move that has many working in housing and home finance warning the public they will apply
Housing data from a range of researchers correspond to concerns buyers are having in finding affordable properties. The median sale price throughout most of January was $376,750, equaling a 4.6% annual increase, according to Redfin.
The median initial asking price surged by an even higher 5.7% to $412,157. While homes are typically sold below asking price, costs are still near record levels, Redfin said.
A segment of buyers who were on the sidelines, though, appear ready to enter the market. "Now it seems clear rates have declined about as much as they're going to decline for now. Sellers are also noticing that even though there are fewer buyers in the market than usual, the buyers who are on the hunt are serious and willing to pay a fair price," said Joe Paolozzi, a Redfin agent in Pittsburgh.
As expectations for prices to rise grows, so does the share of consumers who expect rental costs to go up, Fannie Mae found. The share increased eight percentage points to 65%, according to its index.
Still, homeownership comes out as the more affordable option for families who can manage the initial and monthly expenses even as sale prices grow faster than rental costs, real estate data platform Attom said.
"In most parts of the country, homeownership is somewhat more attainable for those who can gather the necessary resources to cover down payments that often surpass $200,000," said Attom CEO Rob Barber.
"The current situation is tenuous, especially if mortgage rates keep going back up like they have in the past couple of months. But for now, homeownership is the more viable choice," he added.
Expenses for single-family homeowners require a smaller portion of wages than rents for comparable units in almost 60% of markets, Attom's data showed. Generally, the South and Midwest offered more affordable purchases for consumers compared to renting. The growing gap in rental costs versus homeownership widened the most in three Texas metropolitan areas: Houston, Fort Worth and San Antonio.
On the opposite side, median housing prices increased more over the past year than the average three-bedroom rental in 66% of U.S. counties. In parts of the West, "rentals are the financially easier choice."
The largest markets where homeowner expenses are outpacing rent growth the most are Los Angeles, Chicago and Phoenix.
A higher sense of economic security among consumers contributed to the bump in Fannie Mae's monthly purchase sentiment index, which also factors in wages and job data. The net share reporting significantly higher income from a year ago increased two percentage points month over month to 8%. The share not concerned about job potential job loss over the coming year also rose by two percentage points to 56%.
Regardless of whether they are renting or buying, though, "consumers seem increasingly pessimistic that housing affordability conditions will improve across the board," Betancourt noted.
"We expect affordability issues will remain a real challenge for both renters and homeowners alike for the foreseeable future," she added.
