Home Price Growth Expected to Moderate as Listings Outpace Sales

Rhea-AI Summary

Fannie Mae's Economic and Strategic Research (ESR) Group predicts home price growth moderation in the coming years, with annual rates of 6.1% in 2024 and 3.0% in 2025. Despite a 30% increase in home listings compared to last year, housing activity remains soft due to affordability constraints. The ESR Group has revised downward its starts and new home sales forecasts but upgraded its existing home sales forecast due to a lower mortgage rate path.

The group also lowered its inflation forecasts, expecting the Consumer Price Index (CPI) to end 2024 at 2.9% and the core Personal Consumption Expenditures (PCE) Index at 2.5%. As a result, the Federal Reserve is anticipated to cut rates in September and December. Regional variations in housing supply are noted, with Sunbelt metros experiencing significant inventory increases while Northeast and Midwest markets remain tight.

Positive

• Home price growth expected to remain positive, albeit moderating
• Existing home sales forecast revised upward
• Inflation forecasts lowered, with CPI expected to end 2024 at 2.9%
• Federal Reserve anticipated to cut rates in September and December

Negative

• Home price growth expected to moderate to 6.1% in 2024 and 3.0% in 2025
• Housing activity remains soft due to affordability constraints
• Starts and new home sales forecasts revised downward
• Total new home sales expected to slightly decline for full-year 2024

Forecast of New Home Sales Downgraded, Existing Home Sales Upgraded

WASHINGTON, July 23, 2024 /PRNewswire/ -- Home price growth in the second quarter was stronger than previously anticipated but will likely moderate soon, closing 2024 and 2025 at annual rates of 6.1 percent and 3.0 percent, respectively, according to the July 2024 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. Despite a more than 30 percent increase in listings of homes available for sale compared to a year ago, certain indicators of housing activity remain soft, as evidenced in part by fewer existing home sales in May compared to a year ago. This dynamic of gradually increasing supply and affordability-constrained demand is expected to cause home prices, which were up 3 percent on a non-seasonally adjusted basis in the second quarter, according to the Fannie Mae Home Price Index, to moderate going forward. Additionally, the ESR Group notes recent regional volatility in listings and home prices, as many large metros in the Sunbelt, for example, now have inventory levels that match or even exceed for-sale inventories in 2019. This contributed to the ESR Group revising downward its starts and new home sales forecasts; notably, however, it revised upward its existing home sales forecast due to a modestly lower mortgage rate path.

The ESR Group made only modest revisions to its economic growth outlook, as incoming data have come in largely in line with expectations for slowing growth. Notably, due to two consecutive lower-than-expected prints of the Consumer Price Index (CPI), the ESR Group downwardly revised its inflation forecasts and now expects the CPI to end the year at 2.9 percent and the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Index, to end the year at 2.5 percent. Due to the better inflation prints and signs of slowing in the labor market, the ESR Group now expects the Federal Reserve to cut rates in both 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," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "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. We continue to expect home price growth on a national level to decelerate – but remain positive -- over the near term, but it should be noted that conditions often vary by region, particularly as it relates to supply. For instance, many Sunbelt metros are currently seeing significant increases in for-sale inventories, in part due to new construction, while supply in much of the Northeast and Midwest remains extremely tight. 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."

Visit the Economic & Strategic Research site at fanniemae.com to read the full July 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 or survey respondents 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 or survey respondents 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:
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SOURCE Fannie Mae

FAQ

What is Fannie Mae's forecast for home price growth in 2024 and 2025?

Fannie Mae's ESR Group forecasts home price growth to close at annual rates of 6.1% in 2024 and 3.0% in 2025.

How has the supply of homes for sale changed according to Fannie Mae's report?

The report indicates a more than 30% increase in listings of homes available for sale compared to a year ago.

What changes did Fannie Mae (FNMA) make to its home sales forecasts?

Fannie Mae revised downward its starts and new home sales forecasts, but upgraded its existing home sales forecast due to a modestly lower mortgage rate path.

What are Fannie Mae's inflation projections for the end of 2024?

Fannie Mae expects the Consumer Price Index (CPI) to end 2024 at 2.9% and the core Personal Consumption Expenditures (PCE) Index to end at 2.5%.

When does Fannie Mae (FNMA) expect the Federal Reserve to cut interest rates?

Fannie Mae's ESR Group expects the Federal Reserve to cut rates in both September and December 2024.