MW A record share of Americans expect mortgage rates to fall over the next 12 months. How low will rates go?
By Aarthi Swaminathan
Consumers cite 'the lack of affordability and supply as the chief reasons for their pessimism' on the housing market, Fannie Mae economist says
A record share of American consumers expect mortgage rates to fall over the next 12 months, a new survey by Fannie Mae found.
And they're probably right, two economists said.
The share of respondents who said they expect mortgage rates will go down in the next 12 months rose to 39% from 29%, according to a monthly survey by housing-finance giant Fannie Mae (FNMA). The share is at the highest level since Fannie Mae began measuring home-purchase sentiment in 2010.
The expected drop in mortgage rates contributed to a slight improvement in people's optimism about the U.S. housing market. Fannie Mae's monthly Home Purchase Sentiment Index rose 0.6 points in August to 72.1. The HPSI uses information from Fannie Mae's National Housing Survey, which goes back to 2010.
Additionally, a greater share of consumers said they expect home prices to fall over the next 12 months. Even though nearly four in 10 respondents still think home prices will rise in the next 12 months, the share of respondents who expect them to decline increased to 25% from 21%.
The median price of an existing home in July was $422,600, according to the National Association of Realtors, which is the highest on record for that particular month.
Yet even as more consumers expect rates and home prices to fall, their enthusiasm for buying a house remains muted. That's likely due to a lack of affordability and low housing supply, Fannie Mae said Monday.
In August, 83% of survey respondents said it was a bad time to buy a home, up from 82% the previous month.
"Most consumers remain apprehensive about the housing market and continue to point to the lack of affordability and supply as the chief reasons for their pessimism," Mark Palim, vice president and deputy chief economist at Fannie Mae, said in a statement.
How low will mortgage rates go?
Mortgage rates have been falling over the last few weeks ahead of an anticipated interest-rate cut by the Federal Reserve. The 30-year rate was averaging 6.35% as of Sept. 5, according to Freddie Mac (FMCC), which was 77 basis points lower than a year prior.
Rates also fell on Friday on the back of the August jobs report, which signaled a cooling labor market. In August, the U.S. economy created an underwhelming 142,000 jobs, further fueling expectations that the Fed will cut interest rates later in September. The average 30-year fixed-rate mortgage fell 8 basis points to 6.27%, according to a daily survey by Mortgage News Daily. Rates fell even further on Monday, to 6.25%.
Redfin's $(RDFN)$ economics research lead, Chen Zhao, agrees with consumers' assessment that rates will fall over the next 12 months.
"With inflation largely behind us and the labor market softening noticeably, the question that remains for the Fed is not whether they need to start cutting, but how quickly the cuts happen," Zhao said. "The weaker the economy is, the faster they will come and the more rates will fall over the next year."
Danielle Hale, chief economist at Realtor.com, said that based on her projections, rates will likely fall into 2025.
"Consumers have a well-informed outlook," Hale said. Realtor.com expects rates to fall through the end of this year to 6.3%, and to continue to drop in 2025, due to the Fed's expected rate cuts and a falling spread between mortgage rates and rates of other risk-free assets.
(Realtor.com is operated by News Corp subsidiary Move Inc. MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)
Fannie Mae said in its August housing forecast that it expects the 30-year mortgage rate to average 5.9% by the fourth quarter of 2025. It also expects home-price growth to decelerate over the next year.
Some local markets seeing lower demand, more supply
Palim also noted that there is variation among consumers in terms of how pessimistic they are about the housing market, based on their region. For instance, in August, 56% of respondents in the South thought it was a good time to sell - considerably lower than the share in the Northeast, where 80% said it was a good time to sell.
The divergence "reflects in part the wide geographic variation in new home-construction activity," he explained. "[In] regions that had a stronger construction response following the pandemic, our latest survey data suggest that sellers may be losing some of their negotiating power due to the increased supply."
-Aarthi Swaminathan
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(END) Dow Jones Newswires
September 09, 2024 15:13 ET (19:13 GMT)
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