According to recent data from the Home Purchase Sentiment Index, Americans feel more positive about the housing market than they have been in over two years. This uptick in optimism, mainly due to the prediction that mortgage rates will continue to fall in the next 12 months, might create a solution for escalating housing prices.
This rise in housing market sentiment comes in tandem with the Federal Reserve's recent interest rate cuts and steady economic condition. Despite a recent surge, economists argue that the interest rates will follow a downward trend, assuming the economy remains stable.
Falling mortgage rates during the pandemic, enabled by the Federal Reserve's decision to lower its federal funds rate to almost zero, encouraged homeowners to either refinance mortgages or purchase homes in 2021. This record-low rate was an initiative to prevent a potential recession and revitalize the national economy.
However, 2021 also marked a steep rise in inflation, which prompted the Fed to hike its federal funds rate, influencing the mortgage rates in parallel. Consequently, mortgage rates saw a massive jump in 2022 and 2023, discouraging homeowners from trading in their low pandemic-era rates. This scenario led to a housing market stagnation, with reduced home listings and rising prices due to demand exceeding supply.
But the forecasted rate cuts by the Federal Reserve in September triggered a fall in mortgage rates. This change increases the willingness of homeowners to list their homes and also boosts Americans' sentiment about the housing market. Despite sporadic increases, a Freddie Mac report revealed a 1.25 percentage point drop in mortgage rates in the past year.
Findings from a Fannie Mae survey mirror this optimism, showing a rise in the number of respondents favoring home sales, despite a lower percentage suggesting it's a good time to buy.
"Despite the recent fluctuations, lower mortgage rates have comforted homebuyers who have been struggling with high rates," says Jiayi Xu, an economist at Realtor.com.