In November, consumers felt better about the housing market as a slight boost of housing affordability spurred an increase in consumer confidence, according to Fannie Mae’s Home Purchase Sentiment Index.
The government-sponsored enterprise’s report revealed that sentiment rose by 2.7 points in November to 91.5. This rate not only moved back up towards August’s survey high, but also remains 5.3 points above 2018’s rate.
Although November’s increase highlights improvements in the market, Doug Duncan, Fannie Mae’s senior vice president and chief economist, warns confidence is still dampened by several factors including supply and home price appreciation.
“Over the past year, a growing share of consumers say that they expect mortgage rates to remain steady,” Duncan said. “While low rates have helped boost housing affordability compared to last year, the HPSI has increased only moderately in that timeframe.”
“That lean supply means the recent mortgage rate decline – holding payment size constant – allows borrowers to increase bid prices for homes. As a result, home prices are propelled higher, mitigating the benefit of lower borrowing costs for many borrowers, Duncan said. “Additionally, a rising savings rate suggests that consumers could be growing more financially conservative.”
Looking ahead, Duncan said he expects a steady but modest pace of growth in home purchase activity.
That being said, Fannie’s report shows the “Good Time to Buy” and “Good Time to Sell” components grew in November, rising to 61% and 67%, respectively.
However, the GSE indicates the component measuring the net share of Americans who believe mortgage rates will go down in the next 12 months, fell by 3 percentage points, whereas the share who think mortgage rates will stay the same came in at 42%.
Last week, the average U.S. fixed rate for a 30-year mortgage came in at 3.68%. Although this rate is left unchanged from last week’s percentage, it’s still more than a percentage point below the 4.75% of the year-earlier week, according to the Freddie Mac Primary Mortgage Market Survey.
Throughout the year, the nation’s mortgage rates have hovered near historic lows and several reports indicate the trend should continue into the new year.
In its 2020 forecast, the Mortgage Bankers Association said low mortgage rates will push this year’s home lending to a 12-year high of $2.07 trillion and the volume for mortgages to purchase homes will probably total $1.27 trillion, the highest since the peak of the housing bubble in 2006.
Refinancing is also expected to reach $796 billion, the most since 2016, MBA said.
Mike Fratantoni, MBA’s chief economist and senior vice president for research and industry technology, says geopolitical uncertainty and a slowdown in the global economy are behind this year’s drop in interest rates, which he expects to continue next year.
“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook. These lower rates will in turn support both purchase and refinance origination volume in 2020,” said Fratantoni. “Lower-than-expected mortgage rates gave the refinance market a significant boost this year, resulting in it being the strongest year of volume since 2016. Given the capacity constraints in the industry, some of this refinance activity will spill into the first half of next year.”
NOTE: Fannie Mae’s Home Purchase Sentiment Index is constructed from six questions, gauging the current views and forward-looking expectations of consumers navigating the housing market.