Mortgage Market Optimism Inching Upward as New Year Begins
Written By: Joel Palmer, Op-Ed Writer
A larger share of consumer expect mortgage rates to fall in 2024, which for now provides some hope that improved affordability will prompt buyers to enter the market.
The first Fannie Mae Home Purchase Sentiment Index® (HPSI) increased 2.9 points in December to 67.2, due primarily to a significant jump in the share of consumers expecting mortgage rates to go down over the next 12 months. The index is up more than 6 points from this time last year.
A survey-high 31 percent of survey respondents said they expect mortgage rates to fall, compared to 22 percent the previous month. The percentage who expect rates to increase dropped from 44 percent to 31 percent.
The optimism may stem from rates actually dropping in the fourth quarter of 2023, from a peak of 7.79 percent in October to the most recent weekly average of 6.7 percent. That is roughly where Fannie economists expect 30-year fixed rates to average in 2024, after revising downward previous projections, though they cautioned that rates will remain volatile during the current transition from monetary policy tightening to easing.
"A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024,” said Mark Palim, Vice President and Deputy Chief Economist at Fannie Mae.
“Homeowners have told us repeatedly of late that high mortgage rates are the top reason why it's both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may incent some to list their homes for sale, helping increase the supply of existing homes in the new year. Of course, that's likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines. Like many others, even if rates fall further, we continue to believe that affordability will be tempered in part by elevated home prices, especially for first-time homebuyers, and we expect the pace of home sales improvement to be modest in 2024.”
There is also slightly increased optimism about buying a home. The percentage of respondents in this most recent survey who say it’s a good time to buy increased from 14 percent to 17 percent. Those who say it’s a bad tie to buy decreased from 85 percent to 83 percent.
However, there continues to be growing negative sentiment about selling homes. About 57 percent say it’s a good time to sell, down from 60 percent the previous month.
About 39 percent of respondents think home prices will rise in the next 12 months, while 36 percent think they’ll remain roughly the same.
Redfin recently reported that mortgage purchase applications rose 3 percent from a month ago, and there are 9 percent more new listings now than there were a year ago.
“Redfin agents report that as the new year kicks off, more sellers are listing and more buyers are going on tours and applying for mortgages,” Redfin said in a statement. “Buyers are motivated by lower mortgage payments – the median U.S. housing payment is down $327 (-12%) from October’s all-time high – and sellers are motivated by increased demand and the lock-in effect easing.”
The lock-in effect is still an issue for mortgage lenders, Redfin reported. Nationwide, 88.5 percent of U.S. homeowners with mortgages have an interest rate below 6 percent.
“But for most people, it’s not realistic to stay put forever,” Redfin noted. “The share of homeowners with a rate below 6 percent has fallen from its record high partly because some homeowners are opting to bite the bullet and give up their low rate in order to move.”
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
