Dip in Mortgage Rates Spurs (Some) Optimism About the Housing Market

Recent dips in mortgage rates have Americans feeling a little better about the housing market in the new year — and they're hopeful rates will continue cooling.

In a monthly national housing survey from government-backed company Fannie Mae, sentiment ticked up up almost three points in December, mostly thanks to mortgage rate optimism. The improvement in consumer confidence could mean more homes for sale in 2024 — but with home prices expected to stay high, affordability will still be an obstacle for buyers.

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Housing confidence increases as mortgage rates fall

Mortgage rates have cooled steadily since fall, dropping from about 7.76% as of Nov. 2 to 6.61% for the week ending Dec. 28. Fannie Mae’s December index shows that 31% of respondents said they expect mortgage rates to continue decreasing in the next 12 months, a survey high.

That’s a major improvement from September, when only 17% of respondents said the same (and nearly half said they expected rates to increase). About 31% of respondents surveyed in December said they expect rates to increase, while 36% expect them to stay flat.

But U.S. adults don't necessarily feel optimistic about the housing market overall: About 17% of consumers said that now is a good time to buy a home, slightly more than the 14% who said the same in November. Thirty-nine percent of respondents said they expect housing prices to go up over the next 12 months, while only 24% said they would fall and 36% predicted they would stay the same.

What it could mean for buyers and sellers

The more optimistic outlook on mortgage rates could encourage more people to list their homes for sale, Mark Palim, vice president and deputy chief economist at Fannie Mae, said in a news release. Depending on how much mortgage rates actually fall, Fannie Mae expects the pace of home sales — which slowed dramatically amid 2023’s crushing combination of high home prices and mortgage rates — to start seeing some improvement this year.

“A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024,” Palim says.

Even though consumer attitudes have improved a bit, U.S. adults are still “overwhelmingly pessimistic” about homebuying conditions. Prices broke records again in 2023 and demand significantly outweighed supply, keeping prices elevated. Housing experts expect supply to stay low, and while prices probably won't get more expensive this year on a national basis, it's also unlikely that they'll decrease beyond 1%.

As such, Fannie Mae expects elevated home prices to work against any affordability gains stemming from falling mortgage rates, especially for first-time homebuyers.

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