Consumers continued to show increased optimism toward home price, rental price, and mortgage rate expectations, a sign that home purchase activity may see a boost in the coming months.
“Combined with consumers’ growing mortgage rate and rental price increase expectations, the positive home price outlook could incentivize those waiting on the sidelines of the housing market to buy a home sooner rather than later and thus support continued housing acceleration,” said Doug Duncan, SVP and chief economist at Fannie Mae.
The average 12-month home price change expectation jumped from 1.7 percent in November to 2.6 percent in December, the highest level since the survey’s inception in 2010. To compare, the average price change expectation a year earlier was only 0.8 percent.
The share of respondents who believe home prices will rise over the next year also reached its highest recorded level, increasing 6 percentage points to 43 percent. The share of those expecting price declines fell to 11 percent, while the share who believe prices will stay more or less the same fell to 40 percent.
Twenty-one percent of respondents said now is a good time to sell, a decrease of 2 percentage points from November’s record high but still 10 percentage points above the December 2011 survey. The number of respondents who said now is a good time to buy decreased slightly to 71 percent, staying within the small range seen throughout 2012.
In addition, the percentage who expect mortgage rates will go up continued to rise, increasing 2 percentage points to 43 percent—the highest level since August 2011. Eight percent expect rates will drop (a decline from 9 percent in November), while 44 percent expect flat rates (down from 45 percent).
On the rental side, 49 percent of those surveyed said home rental prices will rise in the next year, a slight increase from November, while the share of those expecting rental prices to drop stayed flat at 4 percent. The average rental price change expectation was 4.4 percent, a survey high.
For all that, though, interest in buying and renting was little changed: The percentage of those who would buy if they were going to move decreased slightly to 66 percent, while the percentage of those who would rent remained unchanged at 29 percent.
That flatness may stem from consumers’ overall economic outlook, which tanked after November’s show of optimism.
“Despite continued strengthening in the housing market, consumers’ concerns over the fiscal cliff and debt ceiling have caused considerable volatility in their perceptions of the larger economy,” Duncan said. “This uncertainty seems to be prompting a growing share of consumers to expect their personal finances to worsen and may contribute to weaker near-term economic growth.”
The share of respondents who believe the economy is on the right track dropped 5 percentage points from November’s high, landing at 39 percent in December. Fifty-three percent say the economy is on the wrong track, up from 50 percent in November.
Meanwhile, the percentage of respondents who said their household income is significantly higher than it was a year ago rose slightly to 22 percent. However, 37 percent reported significantly higher household expenses compared to 12 months ago, a 3 percentage point increase over November and the highest level since December 2011.
Consumers’ outlook for the economy also suffered as the nation waited for news of fiscal cliff talks. The percentage who said they expect their personal financial situation will get worse over the next 12 months rose to 20 percent, its highest level since August 2011, while the percentage of respondents expecting their situation will improve stayed flat at 40 percent.