Consumer Optimism Rises in Real Estate Market, Despite Industry Pessimism
While the real estate industry may be feeling the weight of current market challenges, consumer optimism appears to be on the rise. According to the latest Fannie Mae Home Purchase Sentiment Index, consumer confidence in the housing market increased in June, reaching 72.6—a 3.2-point gain from the previous month and the highest level in over two years. This improvement suggests that more consumers are beginning to see the glass half full when it comes to buying and selling homes.
A Shift in Consumer Sentiment
In June, the share of consumers who believe it’s a good time to buy or sell a home increased, although the number of those who think it’s a good time to buy remains relatively low at 19%. This is, however, a notable improvement from May, when this share hit an all-time low of just 14%.
While the June index reflects a positive trend, it’s important to note that consumer sentiment is still well below pre-pandemic levels. The index, which fell to a 13-year low in the fall of 2022, is still far from its summer 2019 peak of 91.5. Despite the gains, consumers remain cautious, with many expecting home prices and mortgage rates to continue rising over the next 12 months. However, this concern is tempered by a growing sense of job security, which could make potential buyers feel more comfortable entering the market.
“Affordability concerns remain the primary driver of consumer housing sentiment, even as the topline findings from our monthly survey showed a modest uptick in optimism on both homebuying and home-selling conditions,” said Mark Palim, Fannie Mae’s deputy chief economist. Palim also pointed out that meaningful improvements in sentiment are unlikely without significant progress on affordability, either through lower mortgage rates or increased housing supply.
Industry Sentiment: A Different Story
While consumers are beginning to feel more positive, the sentiment within the real estate industry is trending in the opposite direction. Builder confidence, as measured by the National Association of Home Builders, has been steadily declining, reaching a score of 43 in June. This decline suggests that builders are increasingly concerned about the market’s future prospects.
Similarly, the latest confidence index from the National Association of Realtors indicates that real estate professionals are less optimistic about buyer traffic increasing year-over-year in the next three months. This growing industry pessimism contrasts sharply with the slight uptick in consumer optimism.
Conflicting Views on Mortgage Rates
Mortgage rates remain a key point of contention between consumers and industry experts. While many industry economists predict that mortgage rates will begin to decrease later this year, consumers are not as convinced. According to Fannie Mae, 33% of surveyed consumers expect mortgage rates to rise in the next 12 months, while only 24% expect them to fall. This marks a significant shift from six months ago when more consumers anticipated a decline in rates. The change in consumer expectations coincided with the Federal Reserve’s decision to delay cutting interest rates, which has kept mortgage rates elevated.
The Road Ahead
The mixed messages from consumers and industry professionals underscore the uncertain path ahead for the real estate market. While consumer confidence shows signs of recovery, significant challenges remain, particularly around affordability. The direction of mortgage rates and the availability of housing supply will likely be key factors in determining whether this newfound optimism can be sustained.
For now, the housing market continues to navigate a complex landscape, with both consumers and industry insiders watching closely to see how these dynamics will play out in the coming months.
