Home price growth in the second quarter was stronger than previously anticipated, but economists at Fannie Mae believe it will likely moderate soon, closing 2024 and 2025 at annualized rates of 6.1% and 3%, respectively.
Even with more listings of homes available for sale compared to a year ago, existing-home sales fell in June. Fannie Mae economists said that increased supply and affordability constrained demand should result in moderating prices. Home prices were up 3% on a non-seasonally adjusted basis in the second quarter.
The company’s Economic and Strategic Research (ESR) Group noted that many large metro areas in the Sun Belt now have inventory levels that match or even exceed for-sale inventories of 2019, prior to the COVID-19 pandemic, which has caused Fannie Mae to downwardly revise its forecasts for housing starts and new-home sales. But the ESR Group also revised its existing-home sales forecast upward.
Fannie Mae said Tuesday it expects the Consumer Price Index to end 2024 at 2.9% and for the Federal Reserve to cut benchmark interest rates in September and December.
“The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises,” Doug Duncan, Fannie Mae’s chief economist, said in the report. “The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers. As such, despite more homes being listed for sale, actual home sales have not picked up.”
Duncan noted that home price deceleration will vary by region and depend heavily on supply. Strong new construction levels in the Sun Belt will ease prices in these markets while inventory remains tight in much of the Northeast and the Midwest, he said.
“In aggregate, we expect these varied market conditions to lead to a slight decline in total new home sales nationally for the full-year 2024, but a slight increase in existing homes sales.”
Combined, the ESR Group expects total home sales to be 4.81 million in 2024, essentially unchanged from the prior month’s forecast.
Fannie now forecasts the 30-year fixed rate mortgage rate to average 6.8% in 2024 and 6.4% in 2025. The company upgraded its expectation for 2024 purchase origination volumes by $14 billion from last month’s forecast, although it downgraded its expectation for refinance volume in 2024 by $26 billion relative to last month’s forecast of $346 billion.
Fannie also forecasts refi volumes to grow to $563 billion in 2025 as home prices continue to rise and mortgage rates fall.
