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How Mortgage Rates are Driving Homebuyers

A mortgage rate environment that is likely to remain flat or decline is driving optimism in housing. According to the latest Fannie Mae Home Purchase Sentiment Index [1] (HPSI) data, housing sentiment touched a new high in August. The HPSI indicated an uptick of 0.1 points to 93.8.

This, despite five of the six HPSI components remaining flat. The only component that saw a considerable spike during the month was the "Mortgage Rates will go Down" factor that rose 11 percentage points to drive the overall index higher, the report indicated.

However, macro-economic factors such as a looming recession and global economic uncertainties saw other indicators declining month over month. Despite these dampeners, Fannie Mae said that the HPSI is "up 5.8 points compared to the same time last year.

“Growing expectations that mortgage rates will remain flat or decline are reflected in the HPSI’s latest reading, which is now at a survey high even though other indicators of economic and housing market sentiment are flat to negative,” said Doug Duncan, SVP and Chief Economist at Fannie Mae.

Among the other HPSI indicators, the net share of Americans who said that now is a good time to buy a home decreased a percentage point to 25% month over month. The component was up 4 percentage points over last year. Those who said that now was a good time to sell also fell four percentage points to 40% even though it should a year-over-year increase of two percentage points.

Looking at home prices, the net share of Americans who said that prices were likely to rise over the next 12 months fell one percentage point to 36%. The number also showed a two percentage point decline over last year. In stark contrast to last year, the net share of Americans who felt mortgage rates will go down over the next 12 months increased 11 percentage points to -17%. This component is up 35 percentage points from the same time last year.

Duncan pointed out that the low-interest-rate environment could be attributed to global economic uncertainties that have somewhat dampened the overall consumer sentiment. “We do expect housing market activity to remain relatively stable, and the favorable rate environment should continue supporting increased refinance activity,” he said.