February Real Estate Survey Summary

1. The Fannie Mae National Housing Survey: Positive Trends in Housing Market Sentiment Despite Continuing Challenges

In a promising turn of events, the Fannie Mae Home Purchase Sentiment Index® (HPSI) climbed 3.5 points in January to reach 70.7, marking its highest level since March 2022. This uptick can be attributed to a surge in consumer confidence regarding job security and a notable increase in the number of consumers anticipating lower mortgage rates. A significant 82% of consumers expressed confidence in their job security for the next 12 months, up from 75% in the previous month. A record-high 36% of respondents expect mortgage rates to decrease over the next year, while only 28% anticipate an increase, and 35% foresee rates remaining unchanged.

Despite these positive indicators, sentiment regarding homebuying conditions remains predominantly pessimistic, with only 17% of consumers considering it a good time to purchase a home. Nevertheless, the overall index has seen a noteworthy 9.1-point increase year over year.

Doug Duncan, Fannie Mae’s Senior Vice President, and Chief Economist, highlighted the significance of these findings, stating, “Mortgage rate optimism increased markedly again in January, with a survey-high percentage of consumers anticipating mortgage rate declines over the next year.”

However, Duncan also pointed out persistent challenges in the housing market. While lower mortgage rates are a boon for affordability, other factors such as home prices, stagnant household incomes, and limited housing supply continue to pose barriers to homeownership.

In summary, while the sentiment around housing market conditions is showing signs of improvement, there are still hurdles to overcome. The gradual increase in housing demand and sales activity forecasted for 2024 may be supported by favorable mortgage rate trends, but meaningful progress in addressing affordability and supply issues remains crucial for sustainable growth in the housing market.

Read more: Thoughts on Fannie Mae housing survey

2. Fed Loan Officer Survey: Tightened Lending Standards and Weaker Demand in Fourth Quarter 2023

The Federal Reserve’s January 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), which covers the fourth quarter of 2023, reveals a notable tightening of standards and a decrease in demand across various loan categories.

For businesses, the survey indicates that banks, on balance, tightened standards for commercial and industrial (C&I) loans to firms of all sizes. Additionally, there was weaker demand reported for C&I loans as well as for all commercial real estate (CRE) loan categories.

On the household front, lending standards tightened across all categories of residential real estate (RRE) loans, except for government residential mortgages and government-sponsored enterprise (GSE)-eligible residential mortgages, which remained largely unchanged. Demand for RRE loans also weakened, along with decreased demand for home equity lines of credit (HELOCs). Furthermore, standards reportedly tightened for credit card, auto, and other consumer loans, with a decrease in demand observed across these categories.

Despite the tightening of lending standards across most loan categories in the fourth quarter, the survey notes that the net shares of banks tightening lending standards were lower compared to the third quarter for all loan categories.

The January SLOOS also featured special questions regarding banks’ expectations for lending standards, borrower demand, and loan performance throughout 2024. Banks, on balance, anticipate lending standards to remain stable for C&I and RRE loans but foresee further tightening for CRE, credit card, and auto loans. Additionally, expectations point towards strengthened demand across all loan categories, coupled with a decline in loan quality across most loan types.

Overall, the report underscores a cautious stance among lenders, with tightening standards and subdued demand observed across various loan segments, indicating potential shifts in the lending landscape in the coming months. Much will depend on the actions of the Federal Reserve, which—despite aggressive signaling about rate cuts last quarter—seems determined to hold rates steady until “something breaks.” They seem set on waiting till unemployment ticks up over 5% (perhaps well over); hopefully. 

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Written by Franklin Carroll. February 12, 2024

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.