Hot Economy, Inflation Likely to Keep Rates 'Higher for Longer'

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Fannie Mae's Economic and Strategic Research Group predicts higher mortgage rates due to stronger economic and inflation data, leading to fewer Federal Reserve rate cuts. Despite this, an increase in new home listings is expected to boost sales, offsetting the impact of rising rates. The group forecasts a modest rise in existing home sales, with new listings outpacing sales, helping to stabilize housing inventory and slow down home price growth. However, the group anticipates a 4.8% rise in home prices for 2024 and a further 1.5% increase in 2025. The ESR Group suggests that interest rates may remain higher for a longer period, impacting home sales and affordability, but expects economic growth and inflation to moderate over time.

Rise in New Home Listings Projected to Boost Sales Despite Recent Run-up in Mortgage Rates

WASHINGTON, April 23, 2024 /PRNewswire/ -- Stronger-than-expected economic and inflation data have pushed interest rates higher and financial markets to price in fewer Federal Reserve rate cuts this year, according to the April 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. While higher mortgage rates present renewed headwinds to the expected recovery in home sales this year, as well as homebuyer affordability more generally, the ESR Group notes that new listings of homes available for sale have continued to rise. While the ESR Group is forecasting existing home sales to rise modestly over the course of the year, it expects the flow of new listings to outpace home sales, which should help gradually thaw housing inventory and contribute to decelerating home price growth. However, based on incoming home price data, which continue to come in strong, the ESR Group expects home prices to rise 4.8 percent in 2024, up 1.6 percentage points from last quarter's projection, and then another 1.5 percent in 2025.

While interest rate cuts appear to be on hold due to the recent mix of strong economic data and hot inflation reports, the ESR Group continues to forecast slowing employment and economic growth, as well as progress toward 2-percent inflation over its forecast horizon. However, recent data have caused a reassessment of the pace of decelerating inflation, and the ESR Group now expects the Consumer Price Index to end 2024 at a 3.1 percent annual rate, compared to the 2.5 percent previously projected.    

"Financial markets rapidly repriced their interest rate expectations following hotter-than-expected inflation reports and ongoing strong payroll employment gains," said Hamilton Fout, Fannie Mae Vice President, Economic and Strategic Research. "While we still expect economic growth and inflation to moderate going forward – and, thus, for mortgage rates to drift downward – interest rates existing in a 'higher for longer' state seems to be an increasingly real possibility in the eyes of market participants, as well as some homebuyers and sellers. While we've recently seen evidence that some potential home sellers are becoming more acclimated to the higher mortgage rate environment and putting their homes on the market, the recent move upward in rates is yet another headwind to the recovery of home sales, and it intensifies longstanding affordability challenges for consumers."

Visit the Economic & Strategic Research site at fanniemae.com to read the full April 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, 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, 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, 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:
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SOURCE Fannie Mae

FAQ

What is the impact of stronger economic and inflation data on interest rates according to Fannie Mae's Economic and Strategic Research (ESR) Group?

Stronger economic and inflation data have led to higher interest rates and fewer expected Federal Reserve rate cuts.

How are higher mortgage rates affecting the recovery in home sales?

Higher mortgage rates pose challenges to the expected recovery in home sales, impacting homebuyer affordability. However, an increase in new home listings is projected to help boost sales.

What does the ESR Group expect regarding existing home sales and new listings?

The ESR Group forecasts a modest rise in existing home sales, with new listings expected to outpace sales, contributing to stabilizing housing inventory and slowing down home price growth.

What are the projected home price increases for 2024 and 2025 according to the ESR Group?

The ESR Group anticipates a 4.8% rise in home prices for 2024 and an additional 1.5% increase in 2025.

How does the ESR Group view the potential duration of higher interest rates?

The ESR Group suggests that interest rates may remain higher for a longer period, impacting home sales and affordability.