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Consumers are getting anxious about inflation again, with a growing number convinced that home prices, rents and mortgage rates are headed up in the year ahead, surveys by Fannie Mae and the University of Michigan out Friday suggest.
Inflation expectations soared after President Donald Trump announced on Jan. 31 that he planned to impose tariffs on goods from China, Canada and Mexico, the University of Michigan’s Surveys of Consumers found.
Joanne Hsu
“Consumer sentiment fell for the second straight month, dropping about 5 percent to reach its lowest reading since July 2024,” survey director Joanne Hsu said in a statement Friday. “The decrease was pervasive, with Republicans, Independents, and Democrats all posting sentiment declines from January, along with consumers across age and wealth groups.”
While a 10 percent tariff on Chinese goods went into effect Tuesday, the administration has put proposed 25 percent tariffs on goods from Canada and Mexico on hold for 30 days.
The National Association of Home Builders has warned that more than 70 percent of imported softwood lumber and gypsum used for drywall comes from Canada and Mexico, and that homebuilders will be facing a 40 percent duty on Canadian lumber if the proposed 25 percent tariff is added to existing duties.
Fannie Mae’s monthly National Housing Survey — which wrapped up on Jan. 21, before the proposed tariffs were announced — also found that consumers are worried that inflation will make housing affordability worse.
Kim Betancourt
“Consumers seem increasingly pessimistic that housing affordability conditions will improve across the board, as a growing share expects home prices, rent prices, and mortgage rates will all go up,” Fannie Mae researcher Kim Betancourt said in a statement Friday.
All five components of the University of Michigan’s Index of Consumer Sentiment declined, bringing the index down 4.6 percent from January and 11.8 percent from a year ago, to 67.8.
Consumer inflation expectations surge on tariff worries
Source: University of Michigan Surveys of Consumers.
“Year-ahead inflation expectations jumped up from 3.3 percent last month to 4.3 percent this month, the highest reading since November 2023 and marking two-consecutive months of unusually large increases,” Hsu said. “This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations.”
Although consumer sentiment declined from January to February among both Republicans and Democrats, there’s been a “dramatic partisan split” in overall confidence since the election, with Democrats more pessimistic than Republicans, Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said.
Oliver Allen
“Politically driven swings in sentiment tend to be poorly correlated with spending decisions, although confidence among independents has dropped back significantly since December too,” Allen said in a note to clients Friday.
The University of Michigan surveyed consumers from Jan. 21 to Feb. 3, and Trump announced the 30-day pause on the tariffs on Mexico and Canada late on the final day of the survey window, Allen noted.
“We think that consumers’ spending will continue to be boosted in the near term by preemptive purchases, as consumers try to get ahead of the higher prices that they fear tariffs will bring,” Allen said.
Fannie Mae’s National Housing Survey generated a slight uptick in the mortgage giant’s Home Purchase Sentiment Index (HPSI).
That’s in part because the HPSI — which distills six questions from the survey into a single number — treats consumer expectations that home prices will go up in the next 12 months as a positive. Expectations that home prices will increase means consumers aren’t worried that prices are about to crash, which is a sign of confidence in housing markets.
Source: Fannie Mae National Housing Survey, January 2025.
But the runup in home prices during the pandemic has already priced many would-be homebuyers out of the market. Millions of Americans would welcome a housing market crash, a LendingTree survey found last fall.
Fannie Mae’s National Housing Survey, which reached 1,055 household financial decision makers between Jan. 2 and Jan. 21, found that 43 percent of Americans thought home prices would keep going up over the next 12 months, up from 38 percent in December.
Fannie Mae economists estimated last month that national home prices rose 5.8 percent in 2024, and forecast that they’ll go up another 3.5 percent in 2025. But as home price appreciation decelerates, prices are expected to come down in some markets — and already have.
Among the 50 largest U.S. housing markets, markets posting annual home price declines in 2024 included Austin, Texas (-2.9 percent); Tampa, Florida (-2 percent); San Antonio, Texas (-1.5 percent) and Jacksonville, Florida (-1.1 percent), according to the ICE Mortgage Monitor report for February.
Eight of Florida’s nine largest markets saw price declines last year, with Miami the lone exception, the report’s authors noted.
“Given slower migration into the state, rising insurance costs, and growing for-sale inventories, home prices in the Sunshine State will be worth watching closely as we make our way through 2025,” the report said.
The ICE Mortgage Monitor identified 18 of the 20 strongest housing markets for price appreciation as being located in “inventory-starved” parts of the Midwest and Northeast.
“On the rental side, consumers have indicated a sharply growing expectation over the past two months that rent prices will increase,” Betancourt said.
The share of consumers who said they expect home rental prices to go up increased 8 percentage points from December to January, to 65 percent. The share of consumers who said they would buy a home if they had to move increased by 3 percentage points, to 68 percent.
“Even though it remains relatively cheaper for consumers to rent than buy in nearly every U.S. metro, we expect affordability issues will remain a real challenge for both renters and homeowners alike for the foreseeable future,” Betancourt said.
Source: Fannie Mae National Housing Survey, January 2025.
Elevated mortgage rates have added to affordability challenges. Not only are would-be homebuyers looking at higher monthly payments, but many homeowners are feeling locked in to the low rate on their existing mortgage and are reluctant to sell.
After hitting a 2024 low of 6.03 percent on Sept. 17, rates on 30-year fixed-rate conforming mortgages climbed above 7 percent in January for the first time since May 2024, according to rate lock data tracked by Optimal Blue.
Mortgage industry economists expect rates on home loans will remain elevated for the remainder of this year, and that the odds are slim that sales of existing homes will bounce back this year after hitting the lowest level in 30 years in 2024.
“The lower optimism toward the mortgage rate outlook was largely expected, as rates have continued to stay elevated and even crossed the 7 percent threshold in mid-January,” Betancourt said. “As noted in our latest forecast, we currently expect mortgage rates to end 2025 around 6.5 percent, relatively little changed from where we are today, which will likely continue to hinder relief for housing affordability and home sales activity.”
Source: Fannie Mae National Housing Survey, January 2025.
High home prices and the lack of inventory in many markets, coupled with elevated mortgage rates, led 78 percent of Americans polled by Fannie Mae in January to say it was a bad time to buy a home.
That’s unchanged from December, but down from 83 percent a year ago — and an all-time high in survey records dating to 2010 of 86 percent registered in May 2024.
Source: Fannie Mae National Housing Survey, January 2025.
Most Americans (63 percent) said January was a good time to sell a home, unchanged from December and up 3 percentage points from a year ago. In April, 67 percent of those surveyed said it was a good time to buy a home.
Source: Fannie Mae National Housing Survey, January 2025.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased 0.3 points in January to 73.4. The HPSI is up 2.7 points compared to the same time last year.
While there was little improvement in the HPSI from December to January, mortgage rate outlook was the only component among six factors tracked that deteriorated.
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