Thoughts on the Fannie Mae Housing Survey: Pessimism about Rates Grows

While the Fannie Mae Consumer Sentiment Survey is up year-over-year, it declined .9 from March to 71.9; this decline is entirely the byproduct of increasing concern about interest rates. The other aspects of the index which measure whether consumers think it is “a good time to buy” and a “good time to sell” were up.

Adaptation to Elevated Mortgage Rates

• Consumers are adjusting their expectations as mortgage rates show signs of climbing. The belief that mortgage rates will increase over the next 12 months has risen, indicating a shift in consumer outlook. A plurality of those surveyed now believe rates will increase—32% to 29%.
• There is a growing realization among consumers that the historically low rates witnessed during the pandemic era may no longer be sustainable. This acknowledgment is crucial as households recalibrate their approach to homebuying and selling in response to the changing economic landscape.

Optimism Amidst Rate Uncertainty

• Despite the increasing pessimism toward mortgage rates, optimism prevails regarding both homebuying and home-selling conditions. Consumer perceptions of these conditions have seen incremental improvements, suggesting a degree of resilience in the housing market.
• The lingering uncertainty surrounding mortgage rates reflects broader economic trends, including rising fuel prices. While the market anticipates potential declines in interest rates, recent developments indicate a possibility of continued rate hikes by the Federal Reserve. Consumers’ apprehensions regarding rate fluctuations may indeed be warranted.

Doug Duncan, Fannie Mae’s Senior Vice President and Chief Economist, underscores the significance of these shifting consumer attitudes. “The housing market is undergoing a period of adjustment,” Duncan remarks. “Consumers are recalibrating their expectations in response to changing mortgage rates and home price dynamics.”

Looking ahead, forecasts suggest a gradual increase in home listings and sales transactions. This anticipated uptick is not only driven by households re-evaluating their stance on homebuying due to rate-related considerations but also by those necessitated by life changes.

Consumer sentiment is not necessarily right. However, perception is itself a fact that has its own effects. If buyers stop believing that interest rates will drop, this might actually help thaw the housing market—as people will stop holding out for lower rates. Indeed, with fuel prices up and reasons to believe Russia and OPEC will cut exports in the lead-up to the election (Russia will keep producing and storing while OPEC will cut production), the pessimistic plurality may even be right.

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Written by Franklin Carroll. April 14, 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.