In a recent report by Fannie Mae, the Home Purchase Sentiment Index (HPSI) increased to 73.9 in September, marking a 30-month high. This rise in sentiment stems from consumer optimism regarding the prospect of declining mortgage rates over the next year. Notably, a record 42% of respondents expressed the belief that mortgage rates would decrease, up from 39% the previous month. However, it’s essential to consider that this optimism was recorded during a period when mortgage rates were falling into the low 6% range, leading up to the Federal Reserve’s much-anticipated rate cut on September 18. Unfortunately, this optimism was short-lived as mortgage rates surged dramatically after the rate cut due to renewed inflation concerns, with the 30-year fixed mortgage rate jumping to 6.62%, a stark increase of 51 basis points since before the cut.
Interestingly, the survey revealed a paradoxical view among consumers: while many believe it is a favorable time to sell a home, they concurrently feel it is a bad time to buy. About 65% of respondents indicated that now is a good time to sell, which has contributed to a surge in housing inventory. Sellers, emboldened by lower mortgage rates, have started listing previously vacant homes they had been holding on to in the hopes of maximizing profit during the price spike. This is contrasted by an overwhelming 81% stating it is a bad time to buy, resulting in a significant drop in demand for existing homes as prospective buyers refrain from making purchases due to high prices.
The sentiment around home buying appears to be influenced more by soaring home prices than by mortgage rates. As more consumers recognize that high prices are a primary barrier to purchasing a home, there is an ongoing buyers’ strike fueled by affordability concerns. Fannie Mae’s observations underline that although many are optimistic about mortgage rates, they still find the current home prices to be a stumbling block. This holds true as existing home sales are projected to hit their lowest levels since 1995, demonstrating a clear disconnect between rising sentiment about mortgage rates and the stagnation in housing sales activity.
Despite the anticipation of declining mortgage rates, the spike in rates following the Federal Reserve’s actions is likely to have repercussions on home prices. Fannie Mae’s economists noted that consumers are looking for a trifecta of factors—lower mortgage rates, reduced home prices, and increased wages—before returning to the market. However, the sudden reversal in mortgage rates complicates this outlook as the expectation of home prices continuing to rise remains entrenched in consumers’ minds. Thus, an environment where buyers are waiting for prices to drop creates a feedback loop, capping sales activity.
Amid these dynamics, many consumers hold a persistent belief that home prices can only escalate. This perspective extends to a plurality of respondents who expect home prices to increase over the next year. Such a belief runs counter to the notion that improved affordability could stem from either declining prices or lower mortgage rates. Still, with the current trends indicating rising rates, reliable improvements in affordability seem unlikely, which has contributed to a prevailing sense of uncertainty in the housing market.
In summary, while the immediate sentiment regarding mortgage rates may suggest a sense of optimism among consumers regarding the housing market, the pronounced disconnect between selling and buying sentiment reveals a more nuanced reality. As the landscape continues to shift with fluctuating mortgage rates and high home prices, potential buyers remain hesitant. The future of home sales will depend significantly on whether prices can adjust to meet consumer expectations and rekindle buyer interest, moving beyond the trepidation currently dominating market sentiment.