Housing Confidence Surges to 20-Month High

Housing Confidence Surges to 20-Month High

Americans’ outlook on the housing market surged to a 20-month high, buoyed by optimism around declining mortgage rates. Fannie Mae’s housing sentiment gauge hit 67.2 in December, the highest since April 2022, driven by a growing belief that rates will soften in the upcoming year. Despite this positivity, the persistently high home prices remain a looming concern, potentially stifling newfound confidence.

While the decline in mortgage rates has boosted optimism among both buyers and sellers, experts caution that affordability woes persist, primarily due to limited inventory and the threat of escalating home prices. Mark Palim, Fannie Mae’s vice president and deputy chief economist, highlighted concerns about affordability, particularly for first-time buyers, despite the anticipated rate drop.

Freddie Mac reported a significant drop in the average 30-year fixed mortgage rate from its peak of 7.79% in October to 6.62% in December. This decline followed signs of reduced inflation, prompting expectations of Federal Reserve rate cuts in 2024. The Fed signaled a possible decrease of up to three rates in 2024, aiming to counter inflationary pressures.

Though the economic outlook has positively impacted mortgage rates, consumer sentiment remains divided regarding rate projections for 2024. While a third of Americans expect further rate drops, 31% anticipate rate hikes, and 36% foresee rates remaining stable. Homeowners and higher-income groups expressed more optimism than renters regarding rate trends, with more homeowners anticipating rate decreases than increases for the first time in Fannie Mae’s National Housing Survey history.

Despite growing homeowner optimism, reluctance to sell persists, primarily due to holding onto low-rate mortgages. Realtor.com highlighted homeowners’ reluctance to sell unless necessary, contributing to tight inventory and elevated prices. Approximately two-thirds of homeowners carry rates under 4%, setting a high threshold for listing homes, continuing to constrain inventory and support higher prices.

The prospect of declining mortgage rates might incentivize some homeowners to list their properties, potentially increasing existing home supply in 2024. However, this hinges on actual rate declines meeting homeowners’ expectations. Despite decreasing rates, the sentiment remains negative among potential buyers, with 83% considering it a bad time to buy due to limited inventory impacting affordability.

Although November saw an increase in newly listed homes compared to 2022, home prices still rose 1% year-over-year, reaching a median sale price of $420,000. Low inventory persists, with a 37.8% deficit compared to typical levels from 2017 to 2019. Fannie Mae’s survey revealed that 41% of respondents expect home prices to rise in the next year, while only 24% anticipate a decrease.

Economists foresee a slight improvement in affordability in 2024, offering a glimmer of hope for buyers fatigued by affordability challenges. Danielle Hale, Realtor.com chief economist, predicts a gradual improvement in affordability, albeit not a substantial turnaround, signaling a step in the right direction for prospective buyers.

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