Consumer confidence toward purchasing a home increased in September to its highest level in more than two years due to the expectation of lower mortgage rates, according to Fannie Mae’s Home Purchase Sentiment Index (HPSI).
But that’s only an early sign that the market is shifting. Due to the expectation of rising home prices in some parts of the country, most consumers still think it’s not a good time to buy a home.
The index reached a reading of 73.9 in September, up 1.8 points from the previous month and up 9.4 points from the same time in 2023, according to the data published on Monday.
But 81% of respondents say it’s a bad time to buy a home, down only two percentage points from the previous month. Meanwhile, the share of those who said it’s a bad time to sell a home was 35%, unchanged from the previous month.
“The recent shift in attitude toward mortgage rates is pushing overall housing sentiment higher, and a growing share are now pointing to high home prices rather than high mortgage rates as the primary sticking point for affordability,” Mark Palim, Fannie Mae senior vice president and chief economist, said in a statement.
Last month, when the Federal Reserve cut the federal funds rate by 50 basis points, a record 42% of consumers said that they expect mortgage rates to decline in the coming 12 months, up from 39% the previous month. To compare, 31% said rates will stay the same and 27% expect rates to increase.
Meanwhile, 39% of the respondents still expect home prices to increase in the next 12 months, compared to 23% who think they’ll decline and 37% who said they’ll stay the same.
“Increased positivity that mortgage rates will continue to fall has driven the HPSI to a 30-month high, but we’ve yet to see consumers’ newfound rate optimism translate into a meaningful increase in home sales activity,” Palim said.
Fannie Mae estimates that existing-home sales are on pace to record their lowest yearly total since 1995, Palim added.