Unaffordability Expected to Remain Primary Constraint on Home Sales

Rhea-AI Summary

The Fannie Mae Economic and Strategic Research (ESR) Group reports continued affordability constraints in the housing market, leading to a downgrade in the 2024 home sales forecast to 4.82 million, a 1.3% annual gain, lower than the previous 2.8% projection. Despite an increase in home listings, sales remain weaker than expected due to the 'lock-in effect' and recalibrated mortgage rate expectations. The ESR Group also downgraded the 2024 GDP growth outlook to 1.6% due to revisions in Q1 GDP data and slowing income and spending growth. The Federal Reserve is now expected to cut rates only once, in December, given the need for sustained cooling inflation. The unemployment rate has risen to 4%, indicating a gradual labor market slowdown. The ESR Group believes housing market activity will remain subdued without significant improvements in income growth, home price appreciation, or mortgage rate declines.

Positive

• Home listings are increasing, potentially alleviating inventory shortages.
• Recent inflation prints are encouraging, signaling possible future rate cuts.

Negative

• Home sales forecast for 2024 downgraded to 4.82 million, reflecting a modest 1.3% annual gain.
• 2024 GDP growth outlook downgraded to 1.6% due to revisions in Q1 GDP data and slowing income and spending growth.
• Expected Federal Reserve rate cuts reduced from two to one, reflecting ongoing inflation concerns.
• Unemployment rate has risen to 4%, signaling a slowing labor market.

Rise in Listings Likely Means Many Homeowners No Longer Willing to Delay Moving

WASHINGTON, June 21, 2024 /PRNewswire/ -- Affordability constraints continue to limit the number of buyers willing and able to make home purchases, even as listings of for-sale homes rise, according to the June 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. As such, the ESR Group downgraded its total home sales forecast to 4.82 million in 2024, representing a modest 1.3 percent annual gain compared to the previously projected 2.8 percent. Home sales have remained weaker than expected despite the recent rise in listings, which may indicate that many homeowners are no longer willing to delay moving due to the so-called "lock-in effect" – perhaps in part due to a general upward recalibration in mortgage rate expectations by consumers following the historically low mortgage rates of the pandemic. While the number of homes available for sale remains tight by historical standards, the months' supply of inventory is gradually increasing, a dynamic the ESR Group sees as consistent with a deceleration in home price growth.

The ESR Group also downgraded its 2024 real gross domestic product (GDP) growth outlook to 1.6 percent on a Q4/Q4 basis due to downward revisions to Q1 2024 GDP data, as well as recent data showing slowing income and spending growth. While recent inflation prints have been encouraging, the ESR Group expects the Federal Reserve will likely need to see several consecutive cool reports to gain confidence that inflation is returning sustainably to its 2-percent target. Given ongoing resilience in nonfarm payroll growth and volatility in inflation readings, the ESR Group now believes the Fed will cut rates only once this year, in December, as opposed to the previously projected two rate cuts.

"The economy appears to be slowing, and recent readings offer hope that inflation is cooling after progress on that front stalled in the first quarter – a trend that will likely need to be sustained for the Fed to feel comfortable cutting rates," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "Additionally, the labor market is showing signs of a gradual slowdown, with the unemployment rate creeping up to 4 percent in the June report. Unfortunately, we're still not forecasting a ramp-up in housing activity, which will require some combination of continued household income growth, a further slowing of home price appreciation, or a decline in mortgage rates to bring affordability within range of many waiting first-time and move-up homebuyers."

Visit the Economic & Strategic Research site at fanniemae.com to read the full June 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 the 2024 home sales forecast for FNMA?

The Fannie Mae ESR Group has downgraded the 2024 home sales forecast to 4.82 million, representing a 1.3% annual gain.

Why did the FNMA ESR Group revise the 2024 GDP growth outlook?

The 2024 GDP growth outlook was revised to 1.6% due to downward revisions in Q1 GDP data and slowing income and spending growth.

How many rate cuts does the FNMA ESR Group expect from the Federal Reserve in 2024?

The FNMA ESR Group expects the Federal Reserve to cut rates only once in December 2024.

What are the main constraints on home sales according to FNMA?

Affordability constraints, the 'lock-in effect,' and recalibrated mortgage rate expectations are key constraints on home sales.

What is the current unemployment rate mentioned by FNMA?

The unemployment rate has risen to 4% according to the FNMA ESR Group's June 2024 report.