Despite ongoing affordability challenges, consumer sentiment toward the housing market saw a modest uptick in January, according to Fannie Mae’s latest Home Purchase Sentiment Index® (HPSI). The index rose 0.3 points to 73.4, reflecting increased optimism about homebuying and home-selling conditions, as well as expectations of rising home prices over the next 12 months.

However, developers and investors should take note: while housing confidence is improving, concerns over affordability and rental price increases are growing—factors that could shape demand, pricing strategies, and investment opportunities in the months ahead.

Key Takeaways for Real Estate Developers and Investors

1. Rent Growth Expectations Are Climbing

One of the most significant shifts in consumer sentiment is the growing belief that rents will continue rising. In January, the share of survey respondents who expect rental prices to increase jumped 8 percentage points to 65%, aligning with Fannie Mae’s projection that multifamily rents will grow between 2.0% and 2.5% this year, compared to just 1.0% last year.

For developers, this signals sustained demand for rental housing despite affordability challenges. Higher expected rents could support pro forma assumptions on new developments, particularly in high-growth metros where rent increases have outpaced inflation. Investors should also see opportunities to capitalize on rental income growth in well-positioned properties.

2. Mortgage Rate Optimism Declines, Keeping More Renters in Place

After last year’s optimism that mortgage rates would fall significantly, sentiment took a sharp turn downward in January. The net share of consumers expecting lower mortgage rates over the next 12 months dropped by 13 percentage points, as rates remained elevated—briefly crossing the 7% threshold in mid-January.

Fannie Mae now forecasts that mortgage rates will remain around 6.5% through the end of 2025, suggesting homeownership affordability will remain a challenge. This could push more would-be buyers to stay in the rental market longer, driving continued demand for multifamily housing.

3. Home Price Expectations Signal a Competitive Market

The survey also found that a growing share of consumers expect home prices to rise over the next year, reinforcing the persistent supply-demand imbalance in the for-sale market. This sentiment is crucial for developers and investors, as it indicates that housing supply constraints will likely keep both home prices and rents elevated.

For multifamily investors, this reinforces the appeal of Build-to-Rent (BTR) and workforce housing strategies, as affordability pressures make renting the more attractive option in many markets. Meanwhile, land acquisition strategies should consider areas with strong home price appreciation forecasts, as these locations will likely see continued rental demand.

What This Means for Developers and Investors

✔️ Multifamily Remains a Strong Bet: Rising rents and affordability concerns should continue to drive demand for apartment living, particularly in high-growth urban and suburban markets.

✔️ Leverage Rental Growth in Projections: With rent growth expectations increasing, developers should reassess underwriting assumptions and explore value-add opportunities to maximize rental income.

✔️ BTR and Workforce Housing Strategies Gain Relevance: As homeownership remains out of reach for many, demand for quality, affordable rental options will be key.

✔️ Interest Rate Stability Could Limit Transactions: With mortgage rates expected to hold steady rather than decline significantly, buyer hesitation could slow multifamily transactions, keeping cap rates under pressure.

✔️ Monitor Market-Specific Trends: Not all regions will experience the same rent growth trajectory—target markets where supply constraints, job growth, and migration trends support strong rental demand.

Final Thoughts

While overall housing sentiment is improving, affordability remains a major headwind, shaping demand for both rental and for-sale housing. Developers and investors who align their strategies with these trends—focusing on rental housing demand, affordability-driven opportunities, and market-specific pricing strategies—will be best positioned to navigate the evolving landscape.

What are your thoughts on the latest housing sentiment trends? Are you adjusting your development or investment approach based on shifting affordability concerns? Let’s discuss. 🚀