Optimism rises as mortgage rates fall, but is it enough to spur home buying?

The Fannie Mae Home Purchase Sentiment Index reached its highest level in more than two years in September based on falling mortgage rates.

Optimism rises as mortgage rates fall, but is it enough to spur home buying?

WASHINGTON — Consumer optimism about falling mortgage rates pushed the Fannie Mae Home Purchase Sentiment Index to its highest level in more than two years.

The September index rose by 1.8 points to 73.9, and increased by 9.4 points year-over-year.

A record 42% of consumers in September said they expect mortgage rates to decline, up from 39% in August and 24% in June. Just 27% believe rates will increase, while the 31% expect no change.

However, consumers also believe home prices will continue to go up over the next 12 months, which could hamper overall affordability. As a result, only 19% indicated it is a good time to buy a home, vs. 65% who think it’s a better time to sell.

“Although most consumers continue to think it’s a ‘bad time’ to buy a home, the recent shift in attitude toward mortgage rates is pushing overall housing sentiment higher,” said Mark Palim, senior vice president and chief economist at Fannie Mae. Despite the index reaching a 30-month high, Palim said, “we’ve yet to see consumers’ newfound rate optimism translate into a meaningful increase in home sales activity.”

Fannie Mae’s housing forecast, released in mid-September, shows existing home sales are on pace to record their lowest annual total since 1995.

“This signals to us that consumers are paying attention to the easing interest rate environment but still feel stymied by the considerable run-up in home prices over the last four years,” he said.

He said sentiment among renters who believe it’s a good time to buy has risen to 20% from 13%, and this group is also increasingly optimistic that mortgage rates will fall, up to 30% from 16%.

“While these numbers are still relatively low, we think the improvement may signal that potential home buyers who have been waiting for mortgage rates to come down may be closer to coming off the sidelines,” said Palim.