Optimism About Mortgage Rates Reaches a Record High: Fannie Mae

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.

Mortgage 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.

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