- Consumers Think 2025 Housing Market Will Be More Favorable With Lower Rates
- Fannie Mae Home Purchase Index Is More Specific To Housing Than Consumer Confidence
- Sentiment Tends To Focus On Economic Conditions. Confidence Tends To Focus on Labor
I’ve always been drawn to hard data as a basis for analysis of a local housing market. Based on feedback from market participants and what I’ve been reading lately, I am now saying things like, “This market feels as if consumers are more optimistic about the future of housing.” Since the fall of 2022, Fannie Mae’s Home Purchase Sentiment Index has been climbing despite rising mortgage rates. While it’s a little problematic to rely on surveys in general and even more so from a government-sponsored entity (GSE) whose business is to facilitate mortgage volume, the survey numbers have been up for more than a year.
The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 1.9 points in December to 73.1 but remained substantially higher than year-ago levels due in part to ongoing mortgage rate optimism. A plurality of consumers continues to expect mortgage rates to decline over the next 12 months
The Difference Between Sentiment And Confidence
The Conference Board’s Consumer Confidence Survey carries the water for “confidence,” and the University of Michigan’s Index of Consumer Sentiment represents “sentiment.” The former began in 1967, and the latter started in 1978. Both are considered the gold standard of these types of indices. Both indices are seen as good for foreshadowing changes in economic conditions more broadly.
According to Investopedia, the differences include:
Many who watch both numbers say that the Conference Board survey tends to be better at picking up on indicators related to the job market and job security, while the Michigan survey is a better measure of pocketbook issues like the price of gasoline.
Brookings recently issued a paper on the difference between the two indices: The paradox between the macroeconomy and household sentiment.
According to the paper:
The main difference between the two surveys is that sentiment tends to focus more on overall economic conditions while confidence tends to focus more on the labor market. Unsurprisingly, confidence has held up better since the pandemic, as the labor market has been particularly strong.
They seem to show a similar pattern but aren’t necessarily related.
Fannie Mae Focuses On Housing Sentiment
The Fannie Mae Home Purchase Sentiment Index (HPSI) is a more recent survey than Confidence and Sentiment, beginning in June 2011. It’s probably the index readers of Housing Notes want to pay attention to due to its focus on housing.
The survey results are sharply up year over year despite rising mortgage rates. Fannie Mae predicts mortgage rates to slip eventually in 2025. Real Estate News has a good summary of the results: Housing optimism up ‘substantially’ compared to a year ago – Consumer sentiment was relatively high in December, largely driven by expectations of declining mortgage rates in 2025.
While consumers appear hopeful about mortgage rates, they appear to recognize that the market is still challenging for buyers. Only 22% of those surveyed said now is a good time to buy a home, while 63% say it’s a good time to sell. A bigger share (38%) expect prices to rise in the coming year compared to those who think prices will go down (27%).
Final Thoughts
We saw more upside expected in 2025 through actual sales data. Manhattan sales rose in the fourth quarter year over year. NAR’s Existing Home Sales and Pending Home Sales also did.
These results suggest that market observers/prognosticators shouldn’t be 100% aligned with high mortgage rates equal falling sales. Many consumers have been waiting for three years for lower rates and are probably sick of waiting – if they can afford to make a move, they probably will.
I’ve shared this before, but the clip speaks to how to solve the housing crisis quickly.
Did you miss the previous Housing Notes?
Housing Notes Reads
- Housing Sentiment Finishes 2024 Higher Despite December Dip [Fannie Mae]
- The paradox between the macroeconomy and household sentiment [Brookings]
- Consumer Confidence vs. Consumer Sentiment [Investopedia]
- Housing optimism up 'substantially' compared to a year ago [Real Estate News]
