Mortgage rates have moved lower in recent months, but Fannie Mae economists said Wednesday that this won’t be enough to increase the number of homes sold in the foreseeable future.
Fannie Mae’s Economic and Strategic Research (ESR) Group downgraded its forecasts for 2024 and 2025 home sales based on a number of reliable metrics that have “barely budged in response to the more favorable rate environment.“ These include purchase mortgage application levels, home tour requests and online views of listings.
The ESR Group now expects 4.78 million home sales in 2024 (down from 4.81 million in its prior forecast) and 5.19 million sales in 2025 (down from 5.26 million). The estimates are also derived from Fannie’s most recent consumer survey in which only 17% of respondents said that it’s a “good time to buy a home.“
“On its face, the lower rate environment should be good for home sales by helping loosen the grip of the so-called ‘lock-in effect,’ in addition to aiding affordability more generally,“ Mark Palim, Fannie Mae vice president and deputy chief economist, said in a statement.
“However, high-frequency data, such as mortgage applications, home showing requests, and listings views, suggest that many potential homebuyers remain reluctant to make the jump. Even with moderately lower mortgage rates, affordability remains close to historic lows due to the high level of home prices relative to incomes. We are therefore expecting continued sluggishness in home sales over the rest of the year.“
The ESR Group noted that demand for refinances has grown in response to lower mortgage rates, and this is expected to provide stability for origination volumes over the next 18 months.
“Our projection for total mortgage originations in 2024 was essentially unchanged at $1.7 trillion, while our outlook for 2025 was revised upward slightly to $2.2 trillion, with an upgrade in refinance originations largely offsetting a downward revision to purchase originations,“ the economists explained.
Fannie Mae calls for mortgage rates to average 6.4% by the end of this year and 5.9% by the end of next year. At HousingWire‘s Mortgage Rates Center on Wednesday, 30-year conventional loan rates averaged 6.68%.
In a continuation of an ongoing trend, Fannie economists believe that new-home sales will continue to outperform existing-home sales “as strong builder margins are likely to drive concessions in the quarters ahead.“ But a backlog of homes under construction that have yet to sell should lead to a “near-term slowdown in starts … until this inventory can be sold.“
The ESR Group continues to forecast a “soft landing“ for the U.S. economy due to cooling inflation and the anticipation of a Federal Reserve rate cut. The group also mentioned the rising unemployment rate, which reached 4.3% in July, but believes that this increase is at least partially due to temporary layoffs rather than permanent job losses.
