Americans haven’t felt this optimistic about the housing market in nearly two years, but it’s home sellers who have anything to be happy about.

Fannie Mae’s gauge on housing sentiment increased slightly in February, marking the third consecutive month of improved confidence and the highest level since March 2022. The boost was driven by increased optimism among home sellers as market conditions continued to tip in their favor.

In fact, some 65% of consumers surveyed by Fannie Mae said it was a good time to sell, up from 60% in January. But that was countered by would-be buyers, who remain extremely pessimistic, with just 17% saying it was a good time to buy.

While would-be buyers remain in low spirits due to woefully low inventory levels and climbing borrowing costs, the uptick in seller confidence could be a sign of more inventory popping up come spring.

“Some home sellers will begin to list properties when mortgage rates come down,” Lawrence Yun, chief economist at the National Association of Realtors, told reporters last month. “But we are not yet out of the woods.”

Read more: Mortgage rates hover around 7% — is this a good time to buy a house?

Climbing rates subdue buyer confidence

Would-be buyers just can’t shake off the burden of climbing borrowing costs, and it’s curbing their confidence.

After falling more than a full point from October’s peak, rates kicked off the year at a low of 6.62% — but the dip didn’t last. The popular 30-year fixed rate rebounded to 6.94% by the end of February, according to Freddie Mac.

And there’s no telling if rates will climb further in the weeks to come.

The national median list price also increased seasonally to $415,000 in February, up from $409,500 the month prior. According to Realtor.com, that uptick, in tandem with higher mortgage rates, increased the required annual household income to purchase an average home by $4,400 to $86,100 — before taxes and insurance.

“Bottom line, affordability is an issue,” Jeff Reynolds, real estate broker and founder of Urban Condo Spaces, told Yahoo Finance.

That much was evident in the latest poll of would-be buyers. According to Fannie Mae, some 83% of consumers said they believe it's a bad time to buy, a measure that hasn’t improved since December.

Still, both buyers and sellers did express some optimism about the direction of mortgage rates, with 36% expecting rates to go down within the next year.

Fannie Mae had forecast rates would level off near the 6% mark by year-end. If that rings true that could give buyers some much-needed relief.

“A decline in mortgage rates — and the resulting uptick in sentiment — would obviously bode well for the upcoming spring homebuying season,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Although affordability will likely remain a significant challenge for buyers, at least until there’s a meaningful addition to net supply.”

Home builders were also confident

The nation’s homebuilders also reported improved optimism in February, with expectations that mortgage rates would soften as the spring approaches.

According to the National Association of Home Builders (NAHB), the likelihood of the Federal Reserve cutting rates later this year and low inventory of existing homes on the market were enough to boost their outlook.

That optimism, however, translated to fewer incentives for homebuyers in February.

Some 25% of builders said they offered a price reduction in February, down from 31% in January and 36% in the last two months of 2023. The average price reduction remained at 6% for the eighth consecutive month, NAHB data showed.

Sales incentives also continued to shrink. The share of builders offering some type of concession to close a deal fell to 58% last month, down from 62% in January — its lowest level since August.

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NAHB Chairman Alicia Huey, too, noted that lower mortgage rates later this year should sway more sidelined buyers to return to their purchase plans.

Huey said: “While mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”

Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.

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