Consumers see home values increasing but are less hopeful about rate relief in the near future
Consumer sentiment toward the housing market showed a slight improvement in January, despite rising concerns about affordability, according to the latest Fannie Mae Home Purchase Sentiment Index (HPSI).
The index rose 0.3 points to 73.4, recovering some ground after dipping in December. The increase was driven by growing optimism about homebuying and selling conditions, as well as stronger expectations that home prices will continue to rise over the next year. However, optimism about lower mortgage rates waned, and concerns about rising rent costs intensified.
“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,” said Kim Betancourt, vice president of multifamily economics and strategic research.
After a surge in mortgage rate optimism in late 2023, January saw a 13-percentage-point drop in the net share of consumers who believe rates will decrease in the next 12 months. The percentage of respondents expecting rates to go down fell from 42% to 35%, while those expecting rates to rise increased from 25% to 32%.
“The lower optimism toward the mortgage rate outlook was largely expected, as rates have continued to stay elevated and even crossed the 7% threshold in mid-January," Betancourt added. “As noted in our latest forecast, we currently expect mortgage rates to end 2025 around 6.5%, relatively little changed from where we are today, which will likely continue to hinder relief for housing affordability and home sales activity.”
Home price expectations strengthened in January, with 43% of consumers believing prices will increase in the next 12 months, up from 38% in December. Meanwhile, those who expect home prices to decline fell from 27% to 22%.
At the same time, consumers are bracing for higher rental costs. The share of respondents who expect rent prices to increase rose eight percentage points to 65%, reflecting ongoing concerns about affordability.
“On the rental side, consumers have indicated a sharply growing expectation over the past two months that rent prices will increase,” Betancourt said in the report. “This mirrors our expectation that multifamily rents will grow between 2.0% and 2.5% this year — up from an estimated 1.0% last year.
“Even though it remains relatively cheaper for consumers to rent than buy in nearly every US metro, we expect affordability issues will remain a real challenge for both renters and homeowners alike for the foreseeable future.”
While overall sentiment improved slightly, attitudes toward homebuying remained stagnant. Just 22% of consumers said it was a good time to buy, while 78% said it was a bad time, unchanged from December.
On the selling side, 63% of respondents believed it was a good time to sell, while 36% said it was a bad time. The net share of those saying it's a good time to sell increased by one percentage point.
Despite affordability concerns, job confidence remained steady. The share of employed consumers who said they are not concerned about job loss rose slightly to 78%, while those concerned about job stability held steady at 22%.
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Household income sentiment also saw modest improvement. The percentage of respondents who said their income was significantly higher than a year ago remained at 17%, while the share reporting significantly lower incomes declined from 11% to 9%. Those who said their income stayed about the same increased to 73% - a new survey high.
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