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A weaker-than-expected spring prompted Fannie Mae economists to cut their forecasts for 2024 home sales, and it now looks like this year will be no better than last year.
But economists at the mortgage giant said Friday that more listings are starting to come to the market, especially in the Sun Belt, and that the economy is cooling at a rate that should help mortgage rates stay on their current downward trajectory. on track.
Doug Duncan
“The economy appears to be slowing, with recent data showing inflation is cooling after progress on that front stalled in the first quarter, a trend that may need to continue for the Fed to feel comfortable,” Fannie Mae’s CEO said. “In addition, the labor market is showing signs of gradually slowing down, with the unemployment rate climbing to 4% in the June report. “
But home sales won’t pick up unless “household incomes continue to grow, home price appreciation slows further, or mortgage rates fall, bringing affordability to bear for many waiting first-time and move-up buyers.”
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Home sales rebound extended to 2025
Source: Fannie Mae Housing Forecast, June 2024.
Existing home sales fell 1.9% in April, with an annualized growth rate of 4.14 million units.
“This is somewhat weaker than we expected, with recent purchase-to-mortg loan application data also pointing to near-term weakness,” Fannie Mae economists said in a commentary on the latest forecast. “As a result, we have lowered our outlook for existing home sales, Total existing home sales are now expected to reach 4.15 million in 2024 (previously 4.2 million). This is now only a modest 1.5% increase from 2023 existing sales.
Recent weakness was confirmed on Friday with the latest existing home sales data for May from the National Association of Realtors, which showed sales fell for a third straight month to a seasonally adjusted annual rate of 4.11 million units.
“The softer sales come amid continued increases in listings. We believe this difference means more homeowners are no longer delaying the decision to sell, despite the so-called ‘lock-in effect’, perhaps due to the belief that mortgage rates will remain elevated for longer,” said Fannie Mae economists. “However, affordability constraints limit the number of buyers willing and able to purchase these homes.”
Fannie Mae economists predict that home prices tend to be “sticky” as they fall, but that “gradual unwinding” of inventories could slow home price growth.
NAR put the number of months of inventory supply in April at 3.5 months, up from 3.0 months a year ago. While Fannie Mae forecasters were unable to incorporate May data into their forecasts, inventory supply increased again last month to 3.7 months, NAR reported.
But these are nationwide numbers, and Fannie Mae forecasters noted that there is a “strong geographic bias” in recent listing growth.
“Many previously hot Sun Belt markets are seeing significant increases in listings. These cities also tend to be markets with higher levels of new construction in recent years, and some of them currently have for-sale inventory levels similar to 2019.
Nearly half of last year’s total national listing growth can be attributed to Florida and Texas.
“This suggests that these markets will experience relative price weakness going forward, while supply remains relatively tight in many Northeast and Midwest markets,” Fannie Mae economists said.
Currently, the scarcity of existing homes in many markets is helping to support the construction and sales of new homes.
But new home sales fell 4.7% from March to April to a seasonally adjusted annual rate of 634,000 units. That’s down 7.7% from a year ago.
With 9.1 months’ supply of new homes on the market in April, the highest level since November 2022, Fannie Mae economists lowered their forecasts for the second quarter of 2024 and the third quarter of 2024. New home sales expectations.
Fannie Mae now expects new home sales in 2024 to be flat at 667,000 units, but to grow 13% next year.
Easing mortgage rates is expected to help drive sales of existing homes up 9% next year to 4.51 million units.
Mortgage rates expected to continue falling
Sources: Fannie Mae Housing Forecast, June 2024; MBA Mortgage Finance Forecast, May 2024.
Recent economic data, including May’s consumer price index (CPI) and producer price index (PPI) readings, were lower than in recent months, giving Fannie Mae economists renewed confidence , believes there is room for mortgage rates to fall this year.
“This good news on inflation caused a sharp decline in the 10-year Treasury rate and increased the likelihood of a rate cut this year,” Fannie Mae forecasters said.
Last month, Fannie Mae forecasters predicted that interest rates on 30-year fixed-rate loans would not drop below 7% this year and would still average 6.6% through the fourth quarter of 2025.
With mortgage rates already below 7%, Fannie Mae forecasts that 30-year fixed-rate loans will fall to 6.7% in the fourth quarter of 2024 and to 6.3% by the end of next year.
Economists at the Mortgage Bankers Association, in their latest forecast released on May 16, expect 30-year fixed-rate loans to hit 6.5 percent by the end of the year and fall below 6 percent in the final three months of 2017. next year.
While Fannie Mae economists don’t expect the Fed to cut interest rates until December, “additional soft inflation reports, especially if coupled with a growing acceptance of wage employment, could be overstated.” If so, then a rate cut in September is still a realistic possibility.
The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, will be updated on June 28.
House prices support the issuance of home purchase loans
Source: Fannie Mae Housing Forecast, June 2024.
The drop in expectations for home sales means Fannie Mae forecasters now expect total mortgage loan purchases to hit $1.3 trillion in 2024, $20 billion less than last month’s forecast.
But that’s still a 10% increase from the $1.22 trillion in purchase mortgages issued last year as house prices rose.
With mortgage rates falling next year and home price appreciation slowing, Fannie Mae expects mortgage purchases to grow 14% to $1.5 trillion by 2025.
Fannie Mae economists now envision a steeper decline in mortgage rates, predicting $4 billion more in refinances this year and next compared with last month’s forecast.
Refinancing volumes are currently expected to grow 50% this year to $372 billion and 46% next year to $544 billion.
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