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Fading hopes that mortgage rates will come down in the next 12 months are denting consumer sentiment about housing market conditions for the first time since November, according to results of a March survey released Monday by Fannie Mae.

Fannie Mae’s Home Purchase Sentiment Index takes six questions from the mortgage giant’s more extensive monthly National Housing Survey and distills them into a single number.

The index dropped 0.9 points in March, to 71.9, even though the percentage of consumers who said it was a good time to buy or sell ticked up slightly in March, and most homeowners and renters said they felt confident that home prices aren’t about to crash.

Three other components of the index — job loss concerns and the outlook for household income and mortgage rates — decreased, bringing the overall index down by 1 percent.

Doug Duncan

“The HPSI remained relatively flat in March, but we’re seeing signs that consumers may be adjusting their expectations for the housing market to better accommodate the higher mortgage rate and home price environment,” Fannie Mae Chief Economist Doug Duncan said, in a statement that put a positive spin on the numbers.

Despite the dip in sentiment, most Americans surveyed in March (68 percent) said they would try to buy a home rather than rent if they were going to move, in line with past surveys.

“We noted in our latest monthly forecast that we expect to see a gradual increase in home listings and sales transactions in the coming year,” Duncan said. “We believe this will be driven not only by those coming off the sidelines due to a rate-related recalibration, but also by households who may need to move for other life reasons.”

Source: Fannie Mae National Housing Survey, March 2024.

Looking back a year, the Home Purchase Sentiment Index (HPSI) is up 10.6 points. But the index has a ways to go before returning to pre-pandemic levels, when it often surged above 90.

Housing affordability continues to weigh on consumer sentiment, with only 21 percent surveyed in March saying it was a good time to buy a home.

That’s up two percentage points from February and seven percentage points from November when only 14 percent of consumers thought it was a good time to buy, an all-time low in survey records dating to 2010.

Source: Fannie Mae National Housing Survey, March 2024.

With the percentage of consumers who said March was a bad time to buy decreasing to 79 percent from 81 percent in February, the net share who said it was a good time to buy was up 4 percentage points month over month, to negative 58 percent.

Source: Fannie Mae National Housing Survey, March 2024.

Tough conditions for buyers are often good news for sellers, and 66 percent of Americans surveyed by Fannie Mae agreed that March was a good time to sell, up from 65 percent in February and 58 percent a year ago.

With the percentage who said March was a bad time to sell decreasing to 34 percent, the net share who said it was a good time to sell increased two percentage points month over month, to 32 percent.

Source: Fannie Mae National Housing Survey, March 2024.

With 40 percent of those surveyed in March expecting home prices to go up in the next 12 months and 38 percent expecting them to stay the same, more than three-quarters of Americans have few worries that home prices could crash anytime soon.

The percentage who expect home prices to fall in the next 12 months decreased to 20 percent, down from 23 percent in February and 31 percent a year ago.

While a decline in home prices might be welcomed by many would-be homebuyers, the HPSI treats expectations that home prices will fall as an indication of pessimism. So the 1 percentage increase in the net share of those who said they expect home prices to go up in the next 12 months had a positive impact on the index.

Source: Fannie Mae National Housing Survey, March 2024.

The primary factor pushing the HPSI down in March was the dwindling number of Americans who think mortgage rates will come down in the next 12 months.

Only 29 percent of those surveyed in March said they expect mortgage rates to come down in the next year, down from 35 percent in February.

With 34 percent expecting mortgage rates to rise and 36 percent expecting them to remain the same, the net share expecting mortgage rates to go down over the next 12 months decreased eight percentage points from February to March, dropping to negative 5 percent.

Mortgage rates have been on the rise this spring as worrisome inflation data has all but put to rest speculation that the Federal Reserve might cut short-term interest rates before June. The rebound in mortgage rates has already dented homebuyer demand for mortgages, after adjustments for the seasonal bump that usually comes in the spring.

Rates on 30-year fixed-rate mortgages have been flirting with 7 percent this spring, hitting 6.89 percent Friday according to Optimal Blue rate lock data. While economists at Fannie Mae and the Mortgage Bankers Association still expect mortgage rates to come down over the next 12 months, the drop may not happen as quickly or as drastically as previously forecast.

In a March 21 forecast, MBA economists predicted rates on 30-year fixed-rate mortgages will drop to 6.1 percent by the end of this year, and average 5.6 percent in Q4 2024. In a forecast also released in March, economists at Fannie Mae said they didn’t envision rates on 30-year fixed-rate loans hitting 6 percent until Q4 2025.

“With the historically low rates of the pandemic era now firmly behind us, some households appear to be moving past the hurdle of last year’s sharp jump in rates, an adjustment that we think could help further thaw the housing market,” Duncan said Monday.

While not included in calculating the HPSI, 58 percent of those surveyed by Fannie Mae in March said they thought it would be difficult to get a mortgage, up from 54 percent in February and 52 percent a year ago.

Source: Fannie Mae National Housing Survey, March 2024.

While only 23 percent of Americans surveyed by Fannie Mae in March said they were concerned about losing their job, that’s up from 22 percent in February and 21 percent a year ago. The net share of those who said they are not concerned about losing their job fell two percentage points from February to March, denting the overall Home Purchase Sentiment Index.

Source: Fannie Mae National Housing Survey, March 2024.

Also weighing on the index was a slight increase in the percentage of consumers who said their household income was significantly lower than it was a year ago.

With 12 percent reporting a drop in income and the percentage reporting higher income unchanged at 19 percent, the net share of consumers reporting significantly higher household income dropped two percentage points from February to March.

Source: Fannie Mae National Housing Survey, March 2024.

Although the strength of the economy is one reason mortgage rates have been rebounding this year, 71 percent of Americans surveyed by Fannie Mae in March said they thought the economy was on the wrong track.

That’s up from 68 percent in February, but down from a 2023 high of 78 percent registered in October.

Consumer sentiment about the economy is not factored into the HPSI.

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