In December, people’s opinions about buying a home improved slightly due to lower interest rates and the expectation of them continuing to go down. However, people’s opinions about selling a home decreased due to the belief that home prices will go down in the future. This is according to the Fannie Mae Home Purchase Sentiment Index (HPSI), which measures people’s attitudes towards housing. This index increased by 3.7 points in December, following a positive change in November after eight months of decline. It’s still 13.2 points lower than the same time last year.

Purchase Sentiment Improves as Rates Declined in December

The share of survey respondents saying it is a bad time to buy continued to outnumber those saying it is a good time by almost four-to-one, with a net good time to buy of -55%, 15 percentage points less than last year. However, this figure has improved by 8 percentage points over November as the number of respondents who think it is a bad time to buy decreased by 3 percentage points and those who think it’s a good time to buy increased by 5 percentage points. Overall, only 21% of survey respondents believed it was a good time to purchase a home.

This past month’s improvement in buying sentiment was partly due to expectations of lower interest rates to come. While only 14% of respondents believe mortgage rates will go down within the next 12 months, this is an improvement from a low of 6% two months ago and the net percent of those who believe rates will go down increased by 15 percentage points over the previous month. The 30-year fixed mortgage rate hit a multi-week low of 6.27% in December, below a high of 7.08% in October and November.  While rates have ticked up since, and forecasts vary widely, our outlook expects a gradual decline in rates in the second half of 2023.

This past month’s improvement in buying sentiment is also likely due in part to price growth expectations changing, with more survey respondents believing that prices will go down within the next 12 months in the month of December (37%) compared to November (34%). In December, the median list price of homes grew by 8.4% on a year-over-year basis, a slower rate of growth that November’s 11.0% growth rate. This is the first time the growth rate in listing prices dipped below double-digits since December 2021, and some metro areas are already seeing listing prices decline on a year-over-year basis. 

Still Favorable Home-Selling Sentiment Declines Amid Declining Price Expectations

According to the survey, the share of respondents saying it is a good time to sell still outnumbered those saying it is a bad time, but selling sentiment declined in December. The net share of respondents saying now is a good time to sell decreased by 3 percentage points compared to last month and was down 25 percentage points compared to the previous year. More respondents expected home prices to decline within the next 12 months which impacts selling sentiment. In December, the share of respondents who said they believe home prices will go up was 30%, compared to 37% who believe prices will decline. These deteriorating expectations may already be impacting household real estate decisions. Existing homeowners are listing at lower rates than before. In December, newly listed homes declined by 21.0% compared to the previous year. This rate of decline is even more pronounced than November’s 17.2% decrease. With mortgage rates still elevated and home price growth declining, homeowners who have locked into more favorable rates in previous years may continue to take a wait-and-see approach before listing their homes.