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Consumer sentiment about the housing market rose in October to the highest level since February 2022, as few Americans expected that mortgage rates would rebound from 2024 lows, according to a monthly survey by mortgage giant Fannie Mae.
Fannie Mae’s Home Purchase Sentiment Index, which distills six questions from the mortgage giant’s monthly National Housing Survey into a single number, climbed to 74.6 in September, up 0.7 points from September and 9.7 points from a year ago.
But mortgage rates were in the midst of a dramatic reversal when the survey was fielded. Eight in 10 Americans said October was a bad time to buy a home, and a record number said they’d be likely to rent if they had to move.
Mark Palim
“While we have seen significant improvement in overall housing sentiment over the past two years, consumers’ perception of homebuying conditions remains strained, with only 20 percent believing it a ‘good time’ to buy a home, primarily due to high home prices,” Fannie Mae Chief Economist Mark Palim said in a statement.
While the share of consumers citing mortgage rates as the primary driver of their homebuying pessimism declined again in October, since then “mortgage rates moved sharply higher, which may serve to suppress some of the recently observed rate optimism,” Palim said.
Four out of six components used to calculate the Home Purchase Sentiment Index (HPSI) improved in October — buying conditions, job loss concern, home price outlook and mortgage rate outlook. The HPSI components that deteriorated were changes in household income and selling conditions.
The HPSI considers consumer sentiment that home prices will go up as a positive for housing sentiment because that suggests would-be buyers and homeowners are more confident that properties will hold their values.
But rising prices have created affordability issues for would-be homebuyers and made renting a more popular option.
Although not factored into the HPSI, Fannie Mae’s National Housing Survey asks consumers whether they would be more likely to buy or rent if they were going to move.
More than one-third of Americans surveyed in October (36 percent) said they’d probably rent rather than buy if they had to move, up 10 percentage points from October 2021 and a new survey high in records dating to 2010.
“One effect of the prolonged period of relatively high home prices of the past four years is that we are seeing a slowly growing preference to rent rather than buy on consumers’ next move,” Palim said. “With rent growth expected to remain modest in 2025, more consumers may be seeking — and finding — attractive deals in the rental market as they continue saving toward a future home purchase.”
Mortgage rates have been volatile this year, and Fannie Mae’s surveys show that consumers are no better at guessing which way rates are headed next than many economists.
When mortgage rates were hitting 2024 highs in April, only 26 percent of Americans expected rates would come down over the next 12 months.
But mortgage rates then proceeded to fall by 1.25 percentage points over the next five months as bond market investors anticipated that the Federal Reserve would begin cutting rates as the economy cooled.
Similarly, only 22 percent of consumers surveyed in October thought mortgage rates would go up in the next year. But last month’s survey of 1,029 household financial decision-makers was conducted between Oct. 1 and Oct. 18, when mortgage rates were just beginning a dramatic reversal from 2024 lows.
Since hitting a 2024 low of 6.03 percent on Sept. 17, rates on 30-year fixed-rate mortgages have bounced back, averaging 6.84 percent Wednesday, according to rate-lock data tracked by Optimal Blue.
Mortgage rates on the rebound
During the period when Fannie Mae’s latest National Housing Survey was fielded, rates on 30-year fixed-rate loans ranged from 6.08 percent on Oct. 1 to 6.45 percent on Oct. 18.
Mortgage rates have been on the rise since Sept. 18, when the Federal Reserve approved its first rate cut in four years, with central bank policymakers warning that they expected to be more cautious about the pace of future rate cuts.
With inventories of homes for sale remaining scarce in many markets, home prices rose in 90 percent of U.S. metro areas during the third quarter, the National Association of Realtors reported Thursday.
About four in 10 Americans (39 percent) surveyed by Fannie Mae in October said they expected home prices to go up in the next year, unchanged from September. Only 23 percent expected home prices to decline, while 38 percent think home prices will hold steady over the next year.
While 80 percent of Americans thought October was a bad time to buy, that was down a percentage point from September. Last year, when mortgage rates were hitting post-pandemic highs, the percentage of Americans who thought it was a bad time to buy hit an all-time survey high of 85 percent.
Nearly two-thirds of Americans (64 percent) surveyed in October said it was a good time to sell a home, down from a 2024 peak of 67 percent registered in April.
Although the question is not factored into the HPSI, 70 percent of consumers surveyed in October said the economy was on the wrong track, up from 68 percent in September but down from a record 81 percent in June 2022.
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