Housing optimism up ‘substantially’ compared to a year ago

Last year at this time, consumers were feeling much better about the housing market compared to a year earlier. But as 2024 progressed, hopes for low mortgage rates and a rebound in sales never really materialized, and many buyers remained priced out of the market.

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So, has that optimism faded? The answer seems to be no, according to the latest Home Purchase Sentiment Index from Fannie Mae. Consumer sentiment has continued to trend upward, reaching 73.1 in December — “substantially above year-ago levels,” said Mark Palim, Fannie Mae SVP and chief economist.

Still, it dipped from its November high, suggesting it could start moving in the opposite direction if mortgage rates remain elevated. But for now, consumers are betting on lower rates in 2025, Palim noted.

Mortgage rate outlook: According to the index, 42% of consumers surveyed expect rates to decline in the next 12 months. While that’s down from 45% in November, it’s a big jump compared to a year ago when only 31% of respondents anticipated declines.

Those expectations could be tested later this month. Mortgage News Daily reported that 30-year rates ticked up on Jan. 7, coming in at 7.14%. Upcoming labor and inflation reports, along with more clarity around the Trump administration’s tariff proposals, will likely dictate where rates go in the coming weeks.

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A more affordable, but still ‘highly competitive’ market: Looking ahead, Fannie Mae predicts a modest decline in mortgage rates, slowing home price growth and higher wage growth in 2025, leading to improved affordability.

“We think home purchase opportunities will still require market savviness by would-be homebuyers in what is expected to remain, broadly speaking, a highly competitive housing market,” Palim said.

While consumers appear hopeful about mortgage rates, they appear to recognize that the market is still challenging for buyers. Only 22% of those surveyed said now is a good time to buy a home, while 63% say it’s a good time to sell. A bigger share (38%) expect prices to rise in the coming year compared to those who think prices will go down (27%).

Little change in financial situations: Employment and income metrics were relatively flat between November and December. The percentage of employed respondents who said they are not concerned about losing their job dropped slightly, from 78% to 77%, while 17% say their household income is significantly higher in December than it was a year ago. That’s up from 16% in November.