Brokerages expect rates to drop. Their clients bank on the opposite

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The real estate industry largely expects mortgage rates to be lower a year from now.

Recent months have given them more reasons to feel good about this outlook eventually bearing out. 

The Federal Reserve is operating on the assumption that the recent bout of inflation has been brought under control after a multi-year period of rate increases. Now, officials have begun a cycle of cuts to the federal funds rate.

Forecasters at Freddie Mac and the Mortgage Bankers Association both tentatively expect rates to be lower by the end of 2025 as a result, even if they remain volatile in the short run.

But the latest results of the Inman-Dig Insights consumer survey suggest that potential homebuyers don’t share this optimism.

In fact, the share of U.S. working adults in early October who expect mortgage rates to rise in the next 12 months outnumber those who expect rates to fall by a nearly 2-to-1 margin.

It’s unclear exactly what might be driving such a gulf between economic expectation and consumer attitudes. But it’s been a consistent dynamic that has shown up in previous surveys as well. And it’s homebuyers — not forecasters — who hold the keys to future home transaction levels.

Intel explores this finding in greater detail in this week’s report, including whether the so-called “golden rate” that might lure buyers and sellers back off the sidelines might be an increasingly moving target.

Divergent outlooks

Four times a year, Intel surveys 3,000 U.S. adults to get a sense of their thoughts, feelings and outlook toward homebuying.

The most recent sample, conducted in early October in partnership with Dig Insights, is structured to be broadly representative of adults between the ages of 24 and 65 who are employed full-time or part-time across the country.

And one thing survey respondents have repeated time and time again is that they don’t feel home affordability is going to improve any time soon — neither in terms of home prices nor mortgage rates.

• 46 percent of U.S. working adults in early October said they expect mortgage rates to increase over the coming year.
• In contrast, only 25 percent of working adults aligned with the industry consensus that mortgage rates are more likely to fall in the next 12 months.

It’s worth noting that the closer a consumer is to hitting the market — or the closer they’ve been to the homebuying process in the past — the more likely they are to share the real estate industry’s consensus outlook on rates.

Share of each group that expects mortgage rates to fall over next 12 months

• Homeowners and likely buyers — 28 percent
• Renters unlikely to buy — 14 percent

Still, the overall picture is one where consumers don’t think homebuying conditions are likely to improve any time soon.

And there may be signs that in recent months consumers have become less responsive to rate movement at all.

Revisiting the ‘golden rate’

In past surveys, Intel has asked consumers on the sidelines to name a rate that would coax them into buying a home.

In July, consumers who were reluctant to buy a home gave the impression that if mortgage rates were to fall as low as 5 percent, a significant share of them might warm to buying soon.

Three months later, fewer reluctant consumers found the idea of a 5 percent rate enticing — an unwelcome finding for real estate professionals, especially as rates have climbed back above 7 percent.

• When surveyed in July, 20 percent of adults who are unlikely to buy said that a mortgage rate as low as 5 percent would force them to seriously reconsider. By early October, that share had fallen to just under 15 percent of unlikely buyers.
• Meanwhile, the share of unlikely buyers who say that no mortgage rate drop would persuade them to buy rose from 38 percent to 43 percent over the same period.

This change was not driven by a reduced desire to move in general. Fewer reluctant buyers in October reported being satisfied with where they live now than did three months earlier.

In addition, fewer consumers said that their reluctance to buy was rooted in home affordability itself. 

Instead, more were likely to cite their own financial situation as an impediment to buying a home.

• 17 percent of unlikely buyers in October said that they “can’t qualify” because of their income, up from 14 percent who said the same three months earlier.
• 17 percent of this group said they “can’t qualify” because of their credit, up from 15 percent.
• And 28 percent of unlikely buyers said that they don’t have enough for a down payment, up from 26 percent the previous period.

Meanwhile, consumers who say they are likely to shop for a home in the next 12 months are less driven by the idea that it’s a sound financial investment, and increasingly motivated by factors like a job-related relocation, a desire to be closer to family or a better school district.

In all, the results point to a market where consumers are increasingly disconnected from mortgage rate movement. And to pull them back into the fold, it may take an even bigger shift in the mortgage rate environment than once thought.

About the Inman-Dig Insights consumer survey

The Inman-Dig Insights consumer survey was conducted from Oct. 4-6, 2024, to gauge the opinions and behaviors of Americans related to homebuying. 

The survey sampled a diverse group of 3,000 American adults, ranging in age from 24 to 65 and employed either full-time or part-time. The participants were selected to produce a broadly representative breakdown by age, gender and region.

Statistical rigor was maintained throughout the study, and the results should be largely representative of attitudes held by U.S. adults in this age group with full- or part-time jobs. Both Inman and Dig Insights are majority-owned by Toronto-based Beringer Capital.

Email Daniel Houston