Record share of consumers expect mortgage rates to fall 

While the seasons may be changing, consumers don't appear to be changing their chilly outlook on the overall housing market — but they are considerably more optimistic about mortgage rates.

Ho-hum about homebuying: Fannie Mae's latest survey found that attitudes about purchasing a home have remained decidedly unenthusiastic. While the August Home Purchase Sentiment Index edged up a hair to 72.1 from July's 71.5, opinions about whether it's a good time to buy or sell were unchanged. Just 17% of consumers said it was a good time to buy, while 65% of respondents believe it's a good time to sell.

While well below its 2019 peak of 93.8, consumer sentiment has been improving since bottoming out at 62 in October 2022, when mortgage rates topped 7% for the first time in decades.

Fingers crossed for lower rates: Consumer perspectives on homebuying may be largely negative, but optimism around mortgage rates was up significantly in August, with 39% of respondents — a survey high — saying they expect rates to decline in the next 12 months. In July, just 29% believed rates would fall.

The share of consumers expecting a decline was greater than the share that expects rates to stay the same (35%) or go up (26%). The change in outlook comes as mortgage rates continue to trend down, falling from nearly 7% in early July to around 6.5% in early August, and remaining at 6.35% last week.

Hope for declining prices: The August survey also found that more consumers expect home prices to go down in the next year. In July, 21% of respondents thought prices would drop over the next 12 months, but that increased to 25% in August. Meanwhile, 37% of consumers think prices will rise — down from 41% in July. 

Still 'apprehensive': So if consumer outlook around affordability has improved, why hasn't homebuying enthusiasm increased — even as economists say the market is (slowing) shifting in buyers' favor? 

Those "positive developments for affordability" just haven't been meaningful enough to turn the tide, said Mark Palim, Fannie Mae's vice president and deputy chief economist. 

"Despite significantly greater optimism that mortgage rates and home prices will move in a more favorable direction for potential homebuyers, most consumers remain apprehensive about the housing market and continue to point to the lack of affordability and supply as the chief reasons for their pessimism," said Palim. 

Where sellers are in control, and where they're losing ground: The August survey found a large gap in consumer opinions around home selling. Only 56% of those in the South said it was a good time to sell, down 5 percentage points from July, while in the Northeast, the market appears to heavily favor sellers: 80% of consumers in that region said it was a good time to sell. That was followed by 70% in the Midwest and 66% in the West. 

"This likely reflects in part the wide geographic variation in new home construction activity," Palim said. "In the regions that had a stronger construction response following the pandemic, our latest survey data suggest that sellers may be losing some of their negotiating power due to the increased supply."