Existing Home Sales on Pace to Hit Nearly 30-Year Low, Despite Recently Lower Rates

Rhea-AI Summary

Fannie Mae's Economic and Strategic Research (ESR) Group forecasts existing home sales to hit a nearly 30-year low in 2024, despite lower mortgage rates and improved supply in some regions. The slowest pace since 1995 is expected due to home-purchase demand at current affordability levels. Regional variations in housing supply are creating divergent affordability conditions, with significant inventory increases in Sun Belt and Mountain West regions. The ESR Group predicts that mortgage rates will average 5.7% by the end of 2025.

Economic growth outlook remains mostly unchanged, with the economy likely shifting into a slower growth path. The Federal Reserve is expected to move towards a more neutral monetary policy stance as inflation approaches the 2% target. Real GDP growth is anticipated to remain subdued before returning to the long-term trend by late 2025.

Positive

• Mortgage rates have declined significantly in recent weeks
• Home supply has increased by nearly 20% from year-ago levels
• Inflation is moving closer to the 2% target

Negative

• Existing home sales forecast to be the slowest since 1995
• home-purchase demand at current affordability levels
• Softness in pending home sales and purchase mortgage applications
• No significant increase in loan application activity despite lower mortgage rates
• Real GDP growth expected to remain subdued in coming quarters

Mortgage Rates Now Forecast to Average 5.7% by End of 2025

WASHINGTON, Sept. 18, 2024 /PRNewswire/ -- Despite a significant decline in mortgage rates and improved supply in some parts of the country, existing home sales are not expected to pick up meaningfully through the remainder of 2024, with the annual pace now forecast to be the slowest since 1995, according to the September 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. Recent data, including softness in pending home sales and purchase mortgage applications, continue to suggest limited home-purchase demand at current affordability levels. According to the ESR Group, existing home sales have not grown despite a nearly 20-percent increase in homes available for sale from year-ago levels, in part due to geographic variations. Much of the increase in for-sale inventories has occurred in the Sun Belt and Mountain West regions, areas that also experienced some of the strongest home price growth in recent years, as well as robust new home construction. This creates both a large relative affordability shock in these states and greater competition for existing home sales stemming from the new construction. The ESR Group believes some combination of easing mortgage rates and soft home price growth relative to income growth in these regions will be needed before existing home sales begin to meaningfully rise.

The ESR Group's economic growth outlook was mostly unchanged this month, as incoming data has been largely consistent with expectations. The ESR Group notes that the economy is likely shifting into a slower growth path, and as inflation moves closer to the 2-percent target, the Federal Reserve is poised to move monetary policy toward a more neutral stance. Still, the ESR Group believes the lagged effect of monetary policy is likely to keep real gross domestic product growth subdued in coming quarters before returning to the long-term trend by the end of 2025.

"Increasingly, regional variations in housing supply are creating divergent affordability conditions and experiences for consumers on both sides of the home sales transaction; however, taken as a whole, home sales activity, particularly on the existing side, remains near what we consider to be the floor of basic demographic and household mortgage demand," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "Supply has risen significantly in many Sun Belt states, where such factors as ease of new home development and increasing insurance costs are having an impact, but at the national level the supply shortage still very much applies. Although mortgage rates have fallen considerably in recent weeks, we've not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment. We think it's likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate. Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability. Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995."

Visit the Economic & Strategic Research site at fanniemae.com to read the full September 2024 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

About the ESR Group
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Doug Duncan, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets. The ESR Group was awarded the prestigious 2022 Lawrence R. Klein Award for Blue Chip Forecast Accuracy based on the accuracy of its macroeconomic forecasts published over the 4-year period from 2018 to 2021.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit: fanniemae.com | X (formerly Twitter) | Facebook | LinkedIn | Instagram | YouTube | Blog

Fannie Mae Newsroom
https://www.fanniemae.com/news

Photo of Fannie Mae
https://www.fanniemae.com/resources/img/about-fm/fm-building.tif

Fannie Mae Resource Center
1-800-2FANNIE

 

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/existing-home-sales-on-pace-to-hit-nearly-30-year-low-despite-recently-lower-rates-302251482.html

SOURCE Fannie Mae

FAQ

What is Fannie Mae's forecast for existing home sales in 2024?

Fannie Mae's Economic and Strategic Research Group forecasts existing home sales to hit a nearly 30-year low in 2024, potentially reaching the slowest pace since 1995.

How have mortgage rates affected home sales according to Fannie Mae (FNMA)?

Despite a significant decline in mortgage rates, Fannie Mae reports that existing home sales are not expected to pick up meaningfully through the remainder of 2024, indicating home-purchase demand at current affordability levels.

What is the projected average mortgage rate by the end of 2025 according to Fannie Mae?

Fannie Mae's Economic and Strategic Research Group forecasts that mortgage rates will average 5.7% by the end of 2025.

How has housing supply changed in different regions according to Fannie Mae's September 2024 report?

Fannie Mae reports that housing supply has increased significantly in Sun Belt and Mountain West regions, creating divergent affordability conditions across the country. However, at the national level, a supply shortage still applies.