Americans haven’t felt this good about the housing market in nearly a year, a new survey found, but rising home prices may threaten that newfound confidence.
Fannie Mae’s gauge of housing sentiment jumped 5.5 points in April to 66.8, its highest level since May 2022 and the largest monthly gain in two years. The boost was driven by increased expectations that mortgage rates would soften in the next 12 months.
Though all six components of Fannie Mae’s survey rose in April, the full index was still down by 1.7 points from one year ago. But that was a significant improvement over March, when the index was down 11.9 points from the previous year and near historic lows.
While both buyers and sellers felt slightly more optimistic about the market and the direction of mortgage rates, affordability remains a top concern going forward as limited inventory continues to help push home prices higher.
“The bump in optimism may prove to be temporary, as consumers continue to report uncertainty about the direction of home prices,” Doug Duncan, chief economist and senior vice president at Fannie Mae, said in a statement. “Until affordability improves for a larger swath of the homebuying public, we believe home sales will remain subdued compared to previous years.”
Homebuyer confidence improves, but not enough
Prospective homebuyers felt more optimistic about purchasing conditions as the spring kicked off. The net share of respondents who said it's a good time to buy increased 6 percentage points from March to April, Fannie Mae found, while the percentage of consumers who said it's a bad time to buy decreased from 79% to 77%. Overall, only 22% of survey respondents believed it was a good time to purchase a home.
April’s brief uptick in buyer sentiment was likely driven by the slight decrease in mortgage rates, which prompted 22% of respondents in April to predict rates would go down, up from 12% in March.
Rates fell to 6.27% in April, according to Freddie Mac, down nearly a half-point from March. Still, the month ended with rates back at 6.43%.
Higher mortgage rates and home prices in April increased the monthly cost of financing 80% of the typical home by roughly 19% from a year ago, a separate study from Realtor.com found.
As a result of those increased costs and rate-sensitivity, homebuying activity remained lackluster compared with previous years, Duncan said.
“Today…consumers reflect their attitudes to what takes place in the market immediately,” Duncan told Yahoo Finance. “If interest rates drop, there’s this burst of activity when an interest rate change takes place. The same is demonstrated if rates increase.”
Home sellers thought twice before listing
The share of respondents who believed it was a good time to sell increased to 62% from 58%, Fannie Mae found, while consumers who said it’s a bad time to sell fell to 38% from 40%. Overall, those who said it's a good time to sell a home increased 5 percentage points month over month.
Though market conditions seemed to tip in favor of sellers in April – improved confidence levels weren’t enough to sway some to list.
According to a separate study from Realtor.com, home sellers were less active in April, with 21.3% fewer homes listed for sale versus a year ago. This trend is likely to continue, as nearly 82% of potential home sellers felt ‘rate trapped’ by their current, lower mortgage rate.
“It’s a sellers market with a caveat,” Duncan said. “If they sell today, they’re likely to have to take a higher interest rate if they buy another house. If they have to use any mortgage, then they’re probably gonna give away some equity and take on a higher mortgage payment because rates are up.”
“Given that we don’t see a significant downside in prices, [confidence] will pretty much plateau,” he said, noting that he’s still monitoring how the Federal Reserve interest-rate hikes may slow the economy. “I’d say we’re pretty close to plateauing at this point.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.