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Mortgage rates will likely continue to fall this year and next, but it will take some time for lower rates to translate into more sales, Fannie Mae economists said Wednesday.
Even with the recent pullback in mortgage rates, Fannie Mae forecasters now expect home sales in 2024 and 2025 to be slightly lower than they forecast in July, as affordability is “unlikely to return to pre-pandemic levels anytime soon.” level”.
Economists at Fannie Mae pointed out that existing home sales fell 5.4% in June to an annualized sales volume of 3.89 million units, which was lower than expected, and the Fannie Mae July survey showed that 82 % of Americans say now is not the time to buy a home.
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Fannie Mae forecasters said: “The active inventory of homes for sale has been increasing throughout the year, but this increase has not been due to a strong increase in listings on the market.” Although the number of new listings increased slightly, “the main driver It’s these listings that aren’t generating any growth in actual home sales, so the total inventory is increasing and the average time on the market is increasing.”
The recent pullback in mortgage rates has given some high-rate homeowners renewed interest in refinancing, but rates will need to fall further to incentivize many would-be homebuyers.
Mark Palin
“On the face of it, a lower interest rate environment would help improve affordability more broadly,” said Mark Palim, deputy chief economist at Fannie Mae. Relaxing the so-called ‘lock-in effect,’ thereby benefiting home sales. “However, high-frequency data such as mortgage applications, home showing requests and listing views indicate that many potential homebuyers are still reluctant to take the first step. “
Economists in Fannie Mae’s Economic and Strategic Research (ESR) group don’t believe there will be a significant pickup in home buying “unless income growth starts to outpace home price growth and mortgage rates approach 6.0%.”
Home sales expected to grow 8.5% in 2025
Source: Fannie Mae Forecast, August 2024.
Fannie Mae economists now expect sales of new and existing homes to rise just 0.5% this year, to 4.78 million units, before surging 8.5% to 5.19 million units in 2025.
That’s 27,000 fewer than Fannie Mae’s July forecast and 67,000 fewer home sales in 2025.
On a seasonally adjusted basis, the home sales pace is currently estimated at about 4.7 million units per year, and is expected to rebound to 5.11 million units next spring and continue to grow to 5.27 million units in the third quarter of 2025 and 5.43 million units in the fourth quarter of 2025. set.
By then, not only are mortgage rates expected to fall, but home price appreciation across the country is also expected to slow.
In July, Fannie Mae economists predicted that national home price growth would slow to 6.1% by the end of this year and to 3% by the fourth quarter of 2024. started to fall.
Fannie Mae economists noted in their latest forecast that the Sunbelt has seen “a disproportionate wave of post-pandemic immigration” and a stronger construction boom in recent years.
Economists at Fannie Mae said that while Sunbelt home prices remain “relatively cheaper than in many Northeastern and West Coast metros, the relative change in affordability in recent years has been much more severe, so normal buyers Groups may be even more stretched”.
Fannie Mae economists said that while the inventory of homes for sale increased in Southern and Mountain West states, “the average for the rest of the country was little changed.”
Home purchase loans are expected to grow by 15% in 2025
Source: Fannie Mae Forecast, August 2024.
Rising home prices are one reason Fannie Mae economists expect home loan volumes to grow 8% this year to $1.325 trillion. But that was $31 billion less than July’s forecast “given the slightly weaker expected path for home sales.”
If the pace of sales picks up in the second half of the year, home loans are expected to grow another 15% next year, to $1.518 trillion.
While mortgage lenders are expected to see stronger refinancing growth, this is based on a relatively low baseline of $248 billion established in 2023.
Economists at Fannie Mae expect refinancing volumes to grow 51% this year to $374 billion and another 68% to $627 billion in 2025.
Mortgage rates expected to fall below 6%
Source: Fannie Mae and Mortgage Bankers Association forecasts, August 2024.
Economists at Fannie Mae and the Mortgage Bankers Association agree that the Federal Reserve is about to initiate rate cuts that will help bring the 30-year fixed rate to a halt by the fourth quarter of 2025. Mortgage rates fell below 6%.
Fannie Mae economists said that as “inflation continues to slow and the labor market softens at least to some extent, rate cuts are expected in the coming period, but the magnitude and speed of the cuts will depend largely on incoming data.” “.
Last month, Fannie Mae forecast that 30-year fixed-rate mortgage rates would average 6.7% in the fourth quarter of 2024 and 6.2% in the fourth quarter of 2025. , 5.9% in the fourth quarter of 2025.
Economists at the mortgage giant noted that rates remain volatile, although they continue to expect a soft landing as inflation cools. If investors in the bond market, which funds most mortgages, conclude that the Fed has waited too long to cut rates and that the economy is heading into recession, mortgage rates could fall further and faster.
“The recent jump in the unemployment rate to 4.3% has added to the stock market growth scare and related volatility,” said Fannie Mae economists. “Recent data appears to have eased many market concerns about a rapid deterioration in economic activity, although as of As of this writing, long-term interest rates remain well below where they were a month ago.”
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