In January the Fannie Mae Home Purchase Sentiment Index rose slightly, to 73.4 from 73.1 in December, driven primarily by improvements in respondent expectations about home price appreciation and despite a sharp downturn in predictions that mortgage rates will come down.
The negative sentiment around rates is easy to understand, as the 30-year fixed rate continues to hover around 7% and the Federal Reserve has paused rate-cutting in the near term to combat lingering inflation. There was no change from December in terms of the share of respondents who consider now a bad time to buy (78%) or a good time to sell (63%), so impressions of the market remain much like they have over the past 12 months.
Despite the consistency in the responses to the high-level questions of whether now is a good time to buy or sell a home, January’s survey showed significant changes regarding more specific expectations: 43% of respondents said that home prices will go up in the next 12 months, while just 22% said that prices will come down, compared with 38% and 27% in December, respectively. This is not consistent with the median list prices we see in the market, which were down 2.2% year over year in January; however, we did see home prices continuing to appreciate on a price-per-square-foot basis.
When asked about their expectations for mortgage rates, 35% said that rates will come down and 32% said that rates will go up, compared with 42% and 25% in December, respectively.
January was another tough month for mortgage rates, and with inflationary expectations picking up as a result of the agenda of the new Trump administration, prospective homebuyers are pessimistic about their options for financing a home purchase. This week’s announcement of a pause on tariffs against Canada and Mexico will hopefully alleviate some of the pressure that these survey respondents are feeling.
Respondents were bullish not only on home prices, which they expect to appreciate by 1.9% (up from 0.4% in December), but also on rental prices, which they expect to pick up by 6% (up from 4% in December). Again, our analysis of the market does not support this, as rents have fallen year over year for 17 consecutive months across the 50 largest U.S. metropolitan areas, but a turnaround is certainly possible.
This anticipation of higher rents led respondents to reverse course from December on whether they would rent or buy their next home. Of the respondents, 68% said they would buy if they were going to move and 32% said they would rent, compared with 65% and 34% in December, respectively. Fluctuations in these metrics are interesting because they represent the decisions of renters right on the margin of becoming first-time homeowners, who appear to be gaining confidence.
Survey respondents showed a bit of trepidation about the economy as a whole and their personal financial situations outside of home purchasing. Among the respondents, 43% expect their personal financial situation to get better over the next 12 months, down from 45% in December and 46% in November following an election bump. Also, 69% say that the economy is on the wrong track, up from 66% in December.
What is good for the economy as a whole is generally good for the housing market, so these concerns contradict the optimism around home prices a bit. However, the “right track or wrong track” question is probably the most political one in the survey and has one of the most stable response rates over the past three years of any question in the survey, so it might not be the most informative. In any case, though the top-line sentiment figure improved this month, there are some underlying concerns present in the respondent pool that suggest some very real pessimism in the housing market.
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