Consumers are feeling more optimistic about mortgage rates 

Consumers may be warming up to the idea of buying a home, even as low inventory and high prices remain challenging.

Fannie Mae's Home Purchase Sentiment Index ended 2023 at 67.2, up more than six points compared to a year earlier and nearly three points higher than in November. The rise was largely due to increasing consumer optimism about mortgage rates: The percentage of respondents expecting rates to fall in the next 12 months jumped from 22% to 31% in December, a survey high. An equal number of consumers think rates will go up, and just over a third believe they will stay the same. In November, 44% of respondents expected rates to rise.

When breaking down the results by homeowners and renters, homeowners had an even rosier outlook. Mark Palim, deputy chief economist at Fannie Mae, said it's the first time in the 14-year history of the survey that more homeowners believe mortgage rates will go down rather than up in the coming year. That could be important heading into the spring homebuying season.

"A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024," Palim said. "Homeowners have told us repeatedly of late that high mortgage rates are the top reason why it's both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may incent some to list their homes for sale, helping increase the supply of existing homes in the new year."

The average 30-year fixed-rate mortgage rate ended the year at 6.62%, down from its 2023 peak in October when rates hovered around 8%.

But many homeowners are not feeling especially excited about selling — particularly if they have locked-in low mortgage rates. While a majority of consumers (57%) still say it's a good time to sell, that percentage dropped from 60% in November.

And what about buyers? While they may be feeling better about mortgage rates, they're not thrilled with the state of the market overall. Just 17% of consumers said now is a good time to buy a home, which is only a slight improvement from November's all-time low of 14%.

Despite the sizable year-over-year improvement, the overall index of 67.2 is low compared to recent years. The peak high came at the end of 2019, when the index hit 91.7 before falling sharply at the onset of the pandemic.

Still, consumers are feeling good about one thing: their financial security. The survey found 75% of consumers are not concerned about losing their job in the next 12 months, while 20% expect household income to rise significantly in the same period. Both measures are relatively unchanged from the month prior.

Even if rates fall further, Palim expects any increase in home sales to be modest as home prices remain high due to low inventory. Active listings were down 3.9% at the end of December compared to a year ago, according to Redfin, though new listings were up 9.5% for the same period.