In December, Fannie Mae reported that prospective buyers’ purchase sentiment improved slightly, but continued to fall short of pre-pandemic levels. Continuing affordability challenges are likely to limit buyer entry into the market in 2023, resulting in fewer home sales in the coming months, according to Fannie Mae.

In spite of affordability barriers, Fannie Mae’s Home Purchase Sentiment Index (HPSI), which measures consumer confidence to buy or sell a home, rose by 3.7 points in December to 61 as consumers reported expectations that mortgage rates and home prices could decrease in the coming months. In October 2022, the HPSI hit an all-time low of 56.7 before rising slightly in December.

There was a lack of optimism among consumers regarding mortgage rates. Approximately 14% of respondents predicted a decrease in mortgage rates in the next 12 months, while 51% predicted an increase.

In 2023, the agency predicts that the average 30-year fixed rate mortgage rate will increase to 6.3% from 5.3% last year. In contrast, the Mortgage Bankers Association (MBA) predicts that rates will decline to 5.2% from 6.6%.

Many lenders have exited certain origination channels to cut their operational costs or have stopped lending altogether as a result of the pivot in the market. Consequently, the MBA noted that credit supply decreased mainly due to this factor.

The modest declines in rates and home prices may not provide buyers with sufficient buying power according to Fannie Mae, noting that affordability will continue to challenge homebuyers in 2023.

According to the MBA, the median price of existing homes will fall from $384,600 last year to $371,400 in 2023, and the median price of new homes will drop from $452,900 in 2022 to $440,100 this year.