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This year is shaping up to be the slowest year for existing home sales in nearly 30 years, as falling home prices are not expected to affect sales until next year, Fannie Mae economists said in their latest housing forecast this week.
Nationally, listings are up more than 20 percent from last year. But the dramatic increase in home prices seen during the crisis continues to pose affordability challenges for consumers in many markets, Fannie Mae forecasters said.
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Realtors like to remind their clients that all homes are local, and Fannie Mae economists see significant regional differences in inventory supply.
The most dramatic increases in foreclosures were in the Sun Belt and Mountain West regions, but “at the national level the inventory shortage is very active,” Fannie Mae Chief Economist Doug Duncan said in a statement.
And while listings are trending higher in parts of the South and West, Fannie Mae economists think “some combination of lower mortgage rates and softer home price growth relative to income growth in these regions will be needed before existing home sales begin to rise meaningfully. “
The day after Fannie Mae released its forecast, the National Association of Realtors reported that existing home sales fell 4.2 percent from a year ago in August, to a seasonally adjusted annual pace of 3.86 million sales.
Home sales are expected to increase by 2025
Source: Fannie Mae Housing Forecast, September 2024.
Fannie Mae economists predict 2024 home sales will be 4.74 million — the slowest pace since 1995.
That would represent a slight drop of 14,000 sales from a year ago when home sales fell 16 percent as rising mortgage rates create affordability challenges for buyers and leave many would-be sellers feeling trapped by low mortgage rates.
Doug Duncan
The decline in sales is expected to be offset by a 2.2 percent increase in new home sales, to 680,000. But existing home sales are expected to decline 0.7 percent this year, to 4.062 million.
“Although mortgage rates have fallen significantly in recent weeks, we have seen no evidence of a corresponding increase in loan demand, and there has been no improvement in consumer buying sentiment,” said Duncan.
Next year, Fannie Mae expects home sales to rise 9.8 percent, to 5.209 million, as mortgage rates fall below 6 percent and “affordability improves slowly and the effects of foreclosures weaken.”
Existing home sales are expected to lead, growing 10.9 percent, to 4.505 million, while new home sales are expected to grow 3.3 percent, to 703,000.
A good time to sell? It depends on where you live
Source: National Housing Survey Analysis by Fannie Mae Economic & Strategic Research Group.
Fannie Mae’s monthly National Housing Survey shows a growing divide in regional views on sales conditions.
In the Northeast, where inventory is tight and homes spend less time on the market, Americans increasingly say it’s a good time to sell. But buyers in the South “have become more bearish in terms of sales conditions,” Fannie Mae economists said in a note accompanying their forecast.
Most of the inventory growth has occurred in the Sun Belt and several Mountain West states, and some of these states now have properties for sale “close to or above pre-pandemic levels at the end of 2019,” Fannie Mae said. noted economists. “However, much of the Northeast and Midwest continues to have a low inventory of homes available for sale.”
NAR reported Thursday that existing home sales — which include single-family homes, town homes, condominiums and co-ops — fell 6 percent from a year ago in the South, with the Northeast the only region where sales did not decline year-over-year. .
According to NAR, the 1.35 million homes on the market at the end of August nationwide represent a 22.7 percent increase from last year. At the current pace of sales, that’s 4.2 months of inventory, up from 3.3 months at the same time last year.
Some housing economists consider the 6-month supply of housing to be a balanced market, with buyers benefiting as the supply of inventory rises above that mark.
Lawrence Yun
“Increased inventory — and, technically, the monthly supply that goes along with it — means home buyers are in a much better position to find the right home and at a better price,” NAR Chief Economist Lawrence Yun said of the data. “However, in areas where supply remains limited, such as many markets in the Northeast, retailers still seem to be holding back.”
Mortgage rates expected to fall below 6%
Source: Fannie Mae Housing Forecast, September 2024 and Mortgage Bankers Association August 2024 forecast.
Although Fannie Mae’s forecast was completed before the Federal Reserve cut short-term interest rates by 50 basis points on Wednesday, it took into account expectations that the Fed will cut rates as the economy cools. Fannie Mae forecasters had thought the Fed would cut rates by 25 basis points this week, followed by equal cuts in November and December.
Noting that long-term rates have already fallen in recent months in anticipation that the Fed will shift gears, Fannie Mae predicted that rates on the 30-year mortgage will not fall below 6 percent until the second quarter of 2025, and the average. 5.7 percent in Q4 2025.
“However, interest rates remain volatile, especially given changes in Fed policy expectations, which adds risk to our outlook,” noted Fannie Mae economists.
Mortgage Bankers Association forecasters predicted a similar decline in Aug. 15.
Lock-rate data tracked by Optimal Blue shows that after falling to 6.03 percent in 2024 on Tuesday, rates on the 30-year benchmark mortgage rebounded on Wednesday and Thursday, when bond market investors who backed more debt already priced in a Fed rate cut.
Home prices increase mortgage volume 2024
Source: Fannie Mae Housing Forecast, September 2024.
Although home price appreciation is cooling, the fact that rates continue to rise in many markets means that mortgage lenders are still on track to get more dollar-valued home equity loans this year than last.
Lower mortgage rates this year should also help boost refinancing capacity, with big gains expected next year.
Fannie Mae economists expect total loans to increase 14 percent in 2024, to $1.68 trillion, followed by 28 percent growth in 2025, to $2.155 trillion.
Even if sales are expected to be flat, mortgage loan originations are expected to grow 7 percent by 2024, to $1.305 trillion. Lower mortgage rates are expected to help boost refinancing by 51 percent this year, to $375 billion.
Next year, purchase loan originations are expected to grow by 15 percent to $1.506 trillion and refinancing by 73 percent, to $649 billion.
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