Home purchase sentiment rose for the second consecutive month in May, according to Fannie Mae’s Home Purchase Sentiment Index (HPSI). The index reached 73.5, a 4.3-point increase from April and the highest reading in six months. Compared to a year ago, the index was up by 4.1 points, signaling improving confidence among consumers despite persistent housing market pressures.

Home Purchase Sentiment Boosted by Rates

The share of consumers who believe it’s a good time to buy a home increased to 26% in May, up from 23% in April. That figure marks the most positive outlook since February 2022. The change reflects a shift in consumer expectations as mortgage rates showed slight signs of improvement, prompting some buyers to re-enter the market.

On the selling side, sentiment also saw a modest rebound. Sixty-one percent of respondents said it was a good time to sell—a three-point gain from the prior month. Still, this reading remains the second lowest recorded over the past 16 months, suggesting ongoing uncertainty about home value trends and market timing.

Interest Rate Expectations Drive Change

A key driver of the May increase in home purchase sentiment was consumer outlook on mortgage rates. Twenty-nine percent of respondents said they expect rates to fall in the next 12 months. That share was the highest in three months and helped lift overall housing confidence.

In parallel, the outlook on personal financial well-being improved. Just 24% of respondents said they expect their financial situation to worsen in the next year, down from 31% in April. This reduced financial anxiety appears to have contributed to the broader upswing in housing sentiment.

Market Still Faces Affordability Headwinds

Despite gains in the index, affordability challenges persist. Home prices remain elevated in many markets, and even modest reductions in mortgage rates have not restored pre-pandemic buying power for most households. Inventory remains tight in many metro areas, limiting selection for buyers and discouraging some potential sellers from listing.

Still, the improvement in home purchase sentiment suggests that consumers are adapting to current market conditions and remain alert to shifts in economic indicators such as interest rates and inflation.

For communities like El Monte, Baldwin Park, and Rosemead, sentiment trends offer insight into future housing activity. As more residents express optimism about buying and selling, local real estate agents, lenders, and policymakers can prepare for potential increases in transaction volume. This may also prompt renewed attention to housing affordability programs and zoning considerations.

Fannie Mae’s HPSI is based on a monthly survey of consumers and tracks attitudes about homebuying and selling conditions, personal finances, and mortgage rate expectations. Its continued rise in May reflects early signs of improving consumer confidence across the housing landscape.