Fannie Mae Reports Rise in Home Purchase Sentiment Amid Mortgage Rate Optimism

Summary

Fannie Mae revealed an increase of 2.9 points to 67.2 in December’s Home Purchase Sentiment Index. This shows a 6.2 point rise YoY. Financial optimism was notably higher amongst homeowners and high-income groups than renters. For the first time in the National Housing Survey’s history, more homeowners believe mortgage rates will fall rather than rise. Despite a drop in the 30-year fixed-rate mortgage from a 23-year high of 7.79% in late October, homeowners remain hesitant to list their homes, causing existing home sales to plunge. However, a positive outlook on mortgage rates may encourage homeowners to list their homes, thus increasing the supply of existing homes for sale. Yet, even with falling rates, affordability is likely to be affected by high home prices, particularly for first-time buyers.

Details of December’s Home Purchase Sentiment Index

In an announcement by mortgage finance agency Fannie Mae, the Home Purchase Sentiment Index rose 2.9 points to 67.2 in December, marking an increase of 6.2 points from the previous year.

Mortgage Rate Outlook

Interesting to note is that homeowners and groups with higher incomes expressed more optimism about rates than renters. Indeed, for the first time in the history of our National Housing Survey, a larger number of homeowners are predicting mortgage rates to decline rather than rise,” explained Mark Palim, deputy chief economist at Fannie Mae.

Trend in Mortgage Rates

The rate of the widespread 30-year fixed-rate mortgage fell from its 23-year peak of 7.79% in late October, following the pattern of declining U.S. Treasury yields. It averaged 6.62% last week, as per data from mortgage finance agency Freddie Mac. The high mortgage rates have discouraged homeowners from selling their houses, leading to reduced inventory and a sharp drop in existing home sales since 2022.

Impact on Home Sales

Palim added that, “Repeatedly, homeowners have indicated that high mortgage rates are the main reason for viewing it as a poor time to buy or sell a house. As such, a more optimistic view on mortgage rates may motivate some to put their homes up for sale, potentially increasing the supply of existing homes in the new year.”

The expected fall in mortgage rates this year has seen the net share of respondents increase by 22 points albeit with homeowners still showing restraint to list their homes. The net share of respondents stating that now is a good time to sell decreased by 5 points, but those opining that it is a good time to buy rose by 5 points.

Future Outlook

“Although rates may drop further, we still believe that home affordability will be somewhat offset by high home prices, particularly for first-time homebuyers. We anticipate a modest improvement in home sales in 2024,” Palim concluded.

Considering the global financial markets, changes in mortgage rates can directly impact forex trading, with particular significance for assets linked to the housing market.

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