Will Mortgage Rate Optimism Climb in 2025?

Despite a 1.9-point decline in December to 73.1, the Fannie Mae Home Purchase Sentiment Index (HPSI) was still significantly higher than it was a year earlier, partly because of continued optimism about mortgage rates. Although December’s 42% share was lower than last month’s 45%, it is still significantly better than last December’s 31% share, indicating that a majority of consumers still anticipate mortgage rates to drop over the next 12 months.

Similarly, shares that expressed confidence about the state of the home-selling and home-buying markets, respectively, decreased little month over month (MoM), but both components are still up year over year. When compared to this time last year, the HPSI is up 5.9 points overall.

“Even though the HPSI fell to end the year, consumer sentiment toward the housing market finished 2024 substantially above year-ago levels, attributable in part to respondents’ ongoing expectations that mortgage rates will decline,” said Mark Palim, Fannie Mae SVP and Chief Economist. “However, just over one-in-five consumers believes it is a ‘good time’ to buy a home—although that share has risen over the last year, too, after reaching an all-time low of 14% in Q4 2023. While respondents remain discouraged by the pandemic-era run-up in home prices and mortgage rates, the upward trend in homebuying sentiment in 2024 may reflect a slow acclimatization to the generally less-affordable market conditions.”

Home Purchase Sentiment Index: Component Highlights

The Home Purchase Sentiment Index (HPSI) for Fannie Mae dropped 1.9 points to 73.1 in December. When compared to the same period last year, the HPSI is up 5.9 points.

• Good/Bad Time to Buy: The percentage of respondents who say it is a good time to buy a home decreased from 23% to 22%, while the percentage who say it is a bad time to buy increased from 77% to 78%. As a result, the net share of those who say it is a good time to buy decreased 3 percentage points MoM to negative 57%.
• Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home decreased from 64% to 63%, while the percentage who say it’s a bad time to sell increased from 35% to 36%. As a result, the net share of those who say it is a good time to sell decreased 2 percentage points MoM to 27%.
• Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months remained unchanged since last month at 38%, while the percentage who say home prices will go down increased from 25% to 27%. The share who think home prices will stay the same decreased from 36% to 35%. As a result, the net share of those who say home prices will go up in the next 12 months decreased 1 percentage point MoM to 11%.
• Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 45% to 42%, while the percentage who expect mortgage rates to go up remained unchanged since last month at 25%. The share who think mortgage rates will stay the same increased from 29% to 32%. As a result, the net share of those who say mortgage rates will go down over the next 12 months decreased 4 percentage points MoM to 16%.
• Job Loss Concern: The percentage of employed respondents who say they are not concerned about losing their job in the next 12 months decreased from 78% to 77%, while the percentage who say they are concerned increased from 20% to 22%. As a result, the net share of those who say they are not concerned about losing their job decreased 4 percentage points MoM to 54%.
• Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 16% to 17%, while the percentage who say their household income is significantly lower decreased from 12% to 11%. The percentage who say their household income is about the same decreased from 71% to 70%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago increased 1 percentage point MoM to 6%.

“As noted in our recently published predictions-for-2025 forecast commentary, we expect a modest decline in mortgage rates, decelerating home price growth, and higher wage growth to improve the relative affordability of purchasing a home in the new year, though consumers’ experiences will likely differ depending on where they live. As such, we think home purchase opportunities will still require market savviness by would-be homebuyers in what is expected to remain, broadly speaking, a highly competitive housing market.”

To read the full report, including more data, charts, and methodology, click here.