Fed Actions Drive Mortgage Rate Expectations

February 07, 2012

Consumer Home Price Expectations Continue Upward Trend; American Attitudes Rebounding After Last Summer's Setback

Pete Bakel

202-752-2034

WASHINGTON, DC – The majority of Americans continue to expect no change in mortgage rates over the next 12 months, according to results from Fannie Mae’s January 2012 National Housing Survey.  At the same time, their expectations for home prices have improved for the fourth month in a row, with respondents expecting prices to go up by 1.0 percent, on average, during the year.  Consumer sentiment is improving from its depressed level last summer, with current attitudes very similar to those of a year ago.  Forty-four percent of respondents expect their personal financial situation to improve, up from 40 percent a month ago, and 30 percent of Americans believe the economy is on the right track, up from 22 percent last month and up for the third straight month since November 2011.

“Consumer sentiment has continued to rebound to the level witnessed around a year ago since hitting a setback last summer. The strengthening employment picture last Friday provides encouragement that the improving trend in consumer confidence will continue and will at some point be reflected in a firming up of consumer spending,” said Doug Duncan, vice president and chief economist of Fannie Mae. “That rebound may be slow in coming as consumers still seem to be deleveraging and aren't yet fully confident of their household finances.”

“The Federal Reserve’s pledge to keep interest rates low beyond 2014, extending their prior time frame of mid-2013 announced in the summer, appears to have been reflected in the rising share of consumers expecting the rate to remain near record low levels for another year,” Duncan stated. “At the same time, consumers expect home prices to rise over the next year, extending the streak of rising home price expectations to four months. If the employment market continues to strengthen, it is unlikely that the Fed will be able to keep its low interest pledge for long, and a more meaningful housing recovery may not be far behind if consumers are faced with the prospect of rising mortgage rates and home prices amid increased job security.”

SURVEY HIGHLIGHTS

Homeownership and Renting

• On average, Americans expect home prices to increase by 1.0 percent over the next 12 months, continuing the upward trend started in October 2011.
• Twenty-eight percent of respondents expect home prices to increase over the next 12 months (up 2 percentage points since last month), while 16 percent say they expect home prices to decline (down 2 percentage points since last month). Fifty-one percent say prices will stay the same.
• Only 8 percent of Americans say that mortgage rates will go down in the next 12 months, down 2 percentage points from December.
• The percentage of respondents who say it is a good time to buy stayed at 71 percent this month, while the percentage who say it is a good time to sell dropped by 1 percentage point to 10 percent.
• On average, respondents expect home rental prices to increase by 3.2 percent over the next 12 months, down from 3.5 percent in December.
• The same percentage of respondents as last month say rental prices will go up (43 percent), go down (5 percent), and stay the same (46 percent).
• Sixty-four percent of respondents say they would buy their next home, while 30 percent say they would rent their next home, down 1 percentage point from last month.

The Economy and Household Finances

• The percentage of respondents who say the economy is on the right track continued to rise this month, reaching 30 percent, an 8 percentage point increase since last month. The percentage who say the economy is on the wrong track dropped to 63 percent, a decline of 6 percentage points.
• A larger share of respondents (44 percent) say their personal financial situation will get better over the next 12 months than say it will stay the same (41 percent), continuing the gains seen last month.
• Seventeen percent of respondents say their income is significantly lower than it was 12 months ago (down 2 percentage points since November), while 62 percent say it has stayed the same (up 3 percentage points).
• Thirty-six percent say their expenses have increased significantly over the past 12 months, a 3 point decrease from last month and the lowest level in the past 12 months.

The most detailed consumer attitudinal survey of its kind, the Fannie Mae National Housing Survey polled 1,000 Americans via live telephone interview to assess their attitudes toward owning and renting a home, mortgage rates, homeownership distress, the economy, household finances, and overall consumer confidence.  Homeowners and renters are asked more than 100 questions used to track attitudinal shifts (findings are compared to the same survey conducted monthly beginning June 2010).  Fannie Mae conducts this survey and shares monthly and quarterly results so that we may help industry partners and market participants target our collective efforts to stabilize the housing market in the near-term, and provide support in the future.

For detailed findings from the January 2012 survey, as well as technical notes on survey methodology and the questions asked of respondents associated with each monthly indicator, please visit the Fannie Mae Monthly National Housing Survey site.  Also available on the site are quarterly survey results, which provide a detailed assessment of combined data results from three monthly studies. The January 2012 Fannie Mae National Housing Survey was conducted between January 9, 2012 and January 27, 2012. Interviews were conducted by Penn Schoen Berland, in coordination with Fannie Mae.