Job security and easing mortgage rates pushed consumer homebuying optimism to the highest level in nearly two years, according to a Fannie Mae survey.

The mortgage giant's January Home Purchase Sentiment Index® (HPSI) increased 3.5 points to 70.7, its highest level since March 2022. The improvement comes as many Americans feel the U.S. economy has turned a corner. 

The number of consumers stating they were not worried about losing their jobs over the next 12 months increased to 82% in January, up from 75% the previous month. Moreover, 36% of respondents said they expect mortgage rates to keep dropping this year. 

Mortgage rates have fallen by more than a percentage point since late October, and Fannie Mae anticipates they could increase to 6% if the Federal Reserve cuts interest rates this year. Despite the improved sentiment over mortgage rates, the outlook on housing remains dim, with only 17% of respondents believing that now is a good time to buy a home. 

"For the first time in our National Housing Survey's history, a greater share of consumers believe mortgage rates will decrease over the next year, rather than increase," Fannie Mae Senior Vice President and Chief Economist Doug Duncan said. "Consumers also expressed greater confidence in their job situations this month, another sign that housing sentiment may continue to improve in 2024.

"However, while home affordability may improve if actual mortgage rates continue moving downward, other parts of the affordability equation have yet to ease or improve for consumers," Duncan continued. 

Homebuyers can find the best mortgage rate by shopping around and comparing options. You can visit an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.

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The number of respondents who expect home prices to rise dropped slightly to 37% in January from 39% the previous month. However, only 22% of respondents believe prices will decrease, down from 24%. U.S. home prices climbed 0.4% month over month in December, the smallest increase since June, according to the Redfin Home Price Index (RHPI). In January, the typical home in the U.S. was $344,000 with a monthly mortgage payment, assuming 20% down, of $1,790, according to Zillow. 

There's little chance that home prices will drop meaningfully this year since many existing homeowners are locked into below 4% mortgage rates. That means the market is likely to remain competitive for what supply does come to market, and home prices will continue to strengthen, even as mortgage rates decline.

"A large majority still think home prices will either increase or stay the same; the 'good time to buy' component continues to hover near its historical low; and fewer than one-in-five respondents indicated that their household income was significantly higher year over year, matching a survey low," Duncan said. "All in all, while a lower mortgage rate path supports our forecast for a gradual increase in housing demand and sales activity in 2024, until we see a meaningful increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many households." 

If you are looking to take advantage of the current mortgage rates by refinancing your mortgage loan or are ready to shop for the best rate on a new mortgage, consider visiting an online marketplace like Credible to compare rates and get preapproved with multiple lenders at once.

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There's little indication that rates will drop lower in time for the spring home buying season. The Federal Reserve is holding steady on interest rates while announcing last week that it would leave the federal funds rate at a 22-year high of 5.25% to 5.5%. Meanwhile, the January employment situation report showed a strong reading, and the economy grew again in the fourth quarter of 2023 to beat expectations. 

The Fed still envisions several interest rate cuts this year but has yet to set a timeline for how soon or far it will go. Fed officials have predicted at least three rate cuts this year, with interest rates expected to tick down to 4.6%, according to the central bank's updated economic forecasts in its Summary of Economic Projections (SEP). 

Fannie Mae has based its forecast that mortgage rates will drop below 6% by the end of 2024 on the Fed moving faster than anticipated on interest rate reductions. How soon cuts will come depends on how fast inflation returns close to that 2% target rate or if the Fed senses that the U.S. economy is headed into a recession.  

If you're looking to become a homeowner, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.

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