Americans are feeling the most optimistic about the mortgage market since the Fed started hiking rates

Sales, inventory, and construction are picking up in the US housing market after months of being battered by sky-high mortgage rates.

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Optimism about mortgage rates rose to levels last seen in March 2022, a Fannie Mae survey found.
The upbeat mood is driven by stronger job security and lower borrowing costs as the Fed looks ready to cut rates. 
Other parts of the affordability equation are still constrained, with consumers expecting home prices to rise.

Americans are feeling a lot better about buying a house. 

A Fannie Mae survey released Wednesday found that optimism around mortgage rates has hit a two-year high. The Home Purchase Sentiment Index increased 3.5 points in January to 70.7, its highest level since March 2022, when the Federal Reserve began its aggressive rate hike campaign.

“Mortgage rate optimism increased markedly again in January, with a survey-high percentage of consumers anticipating mortgage rate declines over the next year,” Doug Duncan, Fannie Mae’s chief economist, said.

The survey recorded an all-time of 36% of respondents expecting home loan costs to go down in the next 12 months.

Rates on the 30-year mortgage have slipped to 6.63%, Freddie Mac data shows. That’s after it punched past 8% back in October. The slide arrives as the Fed mulls cutting interest rates in 2024 as inflation continues to decline. 

A previous report showed that Fannie Mae now expects mortgage rates to dip below 6% this year, a revision of their earlier forecast.

A strong US economy has also contributed to the upbeat sentiment. According to Fannie Mae, 82% of consumers indicated in January that they are not concerned about losing their job in the next year, up from 75% last month. And indeed, the labor market has remained strong. Unemployment has been near historic lows and the US saw a blowout jobs for January report last week.

But it’s not a complete cause for celebration yet, Duncan warned. Other parts of the affordability equation are still gloomy.

The “good time to buy” component of Fannie Mae’s survey is still lingering near historical lows, and many consumers still think home prices will stay flat or even increase. In fact, one expert who nailed the 2023 housing forecast has said home prices could jump 7% this year.

“Until we see a meaningful increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many households,” Duncan said.