Consumer confidence in the housing market is on the rise, as evidenced by Fannie Mae’s November 2024 Home Purchase Sentiment Index (HPSI). The index has shown a significant year-over-year increase, climbing 10.7 points to 75.0, reflecting a gradual adjustment to high mortgage rates and elevated home prices. This improvement underscores a shift in public sentiment, driven by optimism that mortgage rates may decline in the coming year and a tempered outlook on home price growth.
A Slow But Steady Adjustment
The housing market has faced considerable challenges in recent years, with inflation, rising home prices, and historically high mortgage rates deterring many potential buyers. However, November’s data indicates a shift in consumer sentiment, suggesting that people are becoming more acclimated to these conditions.
The HPSI’s increase reflects this adjustment. A record-high percentage of respondents now expect mortgage rates to decline in the next 12 months, signaling growing confidence in future affordability. While only 23% of consumers currently view it as a good time to buy a home, this figure has risen significantly from just 14% in November 2023. Similarly, the percentage of respondents who consider it a good time to sell remains unchanged month-over-month at 64%, but it, too, is up compared to last year.
Optimism Fueled by Mortgage Rate Expectations
One of the most notable drivers of this rebound in sentiment is the public’s expectation that mortgage rates will drop. According to the survey, 45% of respondents believe mortgage rates will decline in the next 12 months, up from 39% the previous month. This growing optimism could incentivize households that have been hesitant to enter the market due to affordability concerns.
Fannie Mae Senior Vice President and Chief Economist Mark Palim pointed out that increased consumer confidence in their financial futures plays a crucial role in this trend. More consumers expect their personal financial situation to improve, which may further ease affordability burdens and encourage homebuying activity.
Home Price Expectations and Their Impact
Another key finding from the survey is a reduction in the number of consumers who expect home prices to rise. The percentage of respondents predicting an increase in home prices fell slightly to 38%, while those anticipating a decline rose to 25%. This tempered outlook aligns with expert predictions of slower home price growth, potentially making the market more accessible to buyers who have been sidelined by affordability challenges.
Although these changes may not translate to immediate relief for prospective buyers, they signal a possible shift toward greater stability in the housing market. A slowing rate of home price appreciation could balance supply and demand dynamics, creating a more favorable environment for both buyers and sellers in the long term.
Challenges and Concerns Persist
Despite the positive trends, challenges remain. High home prices and elevated mortgage rates continue to be significant barriers, with 77% of respondents still viewing it as a bad time to buy a home. Additionally, concerns about household income and job security linger.
The percentage of respondents reporting significantly higher household income than a year ago decreased to 16%, while those reporting lower income rose slightly to 12%. Meanwhile, the share of employed respondents who are unconcerned about job loss dropped marginally to 78%. These economic uncertainties highlight the ongoing struggles many households face as they weigh the decision to buy or sell a home.
Implications for the Twin Cities Housing Market
The upward trajectory of the HPSI suggests that the Twin Cities housing market could see increased activity in the coming months, especially if mortgage rates begin to decline as expected. However, the market’s recovery will likely be gradual, with affordability remaining a top concern for consumers and policymakers alike.
Local markets may also experience varied impacts, depending on economic conditions and housing supply dynamics. As more households adjust to the current market environment, demand for homes in certain areas could pick up, potentially stabilizing prices and fostering a more balanced market.
The Role of Fannie Mae and the HPSI
Fannie Mae’s HPSI and the National Housing Survey® (NHS) provide critical insights into consumer attitudes toward the housing market. By distilling data from thousands of respondents, these tools offer a comprehensive view of market trends and sentiment, helping industry stakeholders make informed decisions.
The HPSI incorporates six key components: whether it’s a good or bad time to buy or sell a home, expectations for home prices and mortgage rates, job security, and household income changes. Together, these indicators provide a snapshot of consumer confidence and the factors shaping their housing decisions.
Looking Ahead
As 2024 draws to a close, the housing market appears to be at a turning point. While challenges like high prices and mortgage rates persist, the growing optimism reflected in Fannie Mae’s HPSI signals a potential shift in consumer behavior. If mortgage rates decline as expected and home price growth slows, more households may feel confident about entering the market, paving the way for a more robust and equitable housing landscape in the coming year.
Fannie Mae’s ongoing research and analysis will continue to play a vital role in understanding these trends and supporting efforts to make homeownership more accessible for all. By tracking shifts in sentiment and market conditions, tools like the HPSI provide valuable guidance for policymakers, industry professionals, and consumers navigating an ever-evolving housing market.
David Gooden is the co-founder of LakePlace.com and a Lake Minnetonka Realtor.