Fannie Mae: Consumers Adjust to Higher Rates

WASHINGTON – While a growing number of consumers think mortgage rates will increase in the coming year, their optimism about the home buying and selling market ticked up, according to Fannie Mae’s Home Purchase Sentiment Index (HPSI).

The HPSI decreased 0.9 points in March to 71.9, its first decline since November 2023, primarily due to increased pessimism about mortgage rates. Fannie Mae said 34% of consumers believe mortgage rates will go up over the next 12 months – up from 32% last month. Twenty-nine percent believe rates will go down.

At the same time, consumer perceptions of buying and selling conditions ticked up slightly again in March. Both measures have now risen multiple months in a row.  However, only 21% of those surveyed believe that it’s a good time to buy, underscoring the continued concern about the lack of affordable housing. The full index is up 10.6 points year over year.

“The HPSI remained relatively flat in March, but we're seeing signs that consumers may be adjusting their expectations for the housing market to better accommodate the higher mortgage rate and home price environment,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

"Both our 'good time to buy' and 'good time to sell' measures continued their slow upward drift this month. However, consumers took a slightly more pessimistic view on the likely direction of mortgage rates, likely reflecting the fact that actual mortgage rates have moved upward since the start of the year,” he said.

“With the historically low rates of the pandemic era now firmly behind us, some households appear to be moving past the hurdle of last year's sharp jump in rates, an adjustment that we think could help further thaw the housing market. We noted in our latest monthly forecast that we expect to see a gradual increase in home listings and sales transactions in the coming year. We believe this will be driven not only by those coming off the sidelines due to a rate-related recalibration, but also by households who may need to move for other life reasons,” he said.

Home Purchase Sentiment Index component highlights

• Good/bad time to buy: The percentage of respondents who say it is a good time to buy a home increased from 19% to 21%, while the percentage who say it is a bad time to buy decreased from 81% to 79%. As a result, the net share of those who say it is a good time to buy increased 4 percentage points month over month.
• Good/bad time to sell: The percentage of respondents who say it is a good time to sell a home increased from 65% to 66%, while the percentage who say it's a bad time to sell decreased from 35% to 34%. As a result, the net share of those who say it is a good time to sell increased 2 percentage points month over month.
• Home price expectations: The percentage of respondents who say home prices will go up in the next 12 months decreased from 42% to 40%, while the percentage who say home prices will go down decreased from 23% to 20%. The share who thinks home prices will stay the same increased from 34% to 38%. As a result, the net share of those who say home prices will go up in the next 12 months increased 1 percentage point month over month.
• Mortgage rate expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 35% to 29%, while the percentage who expect mortgage rates to go up increased from 32% to 34%. The share who thinks mortgage rates will stay the same increased from 32% to 36%. As a result, the net share of those who say mortgage rates will go down over the next 12 months decreased 8 percentage points month over month.
• Job loss concern: The percentage of respondents who say they are not concerned about losing their job in the next 12 months decreased from 78% to 77%, while the percentage who say they are concerned increased from 22% to 23%. As a result, the net share of those who say they are not concerned about losing their job decreased 2 percentage points month over month.
• Household income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago remained unchanged at 19%, while the percentage who say their household income is significantly lower increased from 11% to 12%. The percentage who say their household income is about the same decreased from 70% to 68%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago decreased 2 percentage points month over month.

The HPSI distills information about consumers' home purchase sentiment from Fannie Mae's National Housing Survey (NHS) into a single number. The HPSI reflects consumers' current views and forward-looking expectations of housing market conditions and complements existing data sources to inform housing-related analysis and decision making. The HPSI is constructed from answers to six NHS questions that solicit consumers' evaluations of housing market conditions and address topics that are related to their home purchase decisions. The questions ask consumers whether they think that it is a good or bad time to buy or to sell a house, what direction they expect home prices and mortgage interest rates to move, how concerned they are about losing their jobs, and whether their incomes are higher than they were a year earlier.

The National Housing Survey (NHS) is a monthly attitudinal survey, launched in 2010, which polls the adult general population of the United States to assess their attitudes toward owning and renting a home, purchase and rental prices, household finances and overall confidence in the economy. Each respondent is asked more than 100 questions, making the NHS one of the most detailed attitudinal longitudinal surveys of its kind, to track attitudinal shifts, six of which are used to construct the HPSI (findings are compared with the same survey conducted monthly beginning June 2010).

The March 2024 National Housing Survey was conducted between March 1, 2024, and March 19, 2024.

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