Fannie Mae’s Economic and Strategic Research (ESR) Group has modestly revised its interest rate forecast lower for 2024, but has downgraded its total home sales outlook for the year as well.
On the interest rate side, economists at the government-sponsored enterprise (GSE) noted recent declines both to mortgage rates and long-term interest rates, along with the high potential of upcoming cuts to the Federal Reserve’s benchmark rate in the near future. Consequently, Fannie has amended its forecast for the 30-year fixed mortgage interest rate to an average of 6.7% this year, down one-tenth of a percentage point from last month’s forecast. Next year’s rate forecast has been revised downwardly as well to an average of 6.0%, four-tenths of a point down from the previous estimate, moving toward 5.9% by the end of the year.
Unfortunately, homebuyers have reacted unenthusiastically thus far to the lower rate path as affordability continues to hinder demand. In its August Economic Developments report, the ESR group said that “there has been little evidence in high frequency data pointing to any meaningful movement in home purchase activity in recent weeks despite the pullback in mortgage rates.” Indeed, the purchase side of the Mortgage Bankers Association’s Weekly Applications survey has been essentially flat of late and Redfin’s Homebuyer Demand Index, a measure of requests for tours, showings and requests for services from the company’s agents, remains 10% below its level at this time one year ago. Moreover, Fannie noted that the latest iteration of its Home Purchase Sentiment Index remains weak, with just 17% of consumers indicating it’s a good time to buy a home.
“On its face, the lower rate environment should be good for home sales by helping loosen the grip of the so-called ‘lock-in effect,’ in addition to aiding affordability more generally,” said Mark Palim, Fannie’s vice president and deputy chief economist. “However … even with moderately lower mortgage rates, affordability remains close to historic lows due to the high level of home prices relative to incomes. We are therefore expecting continued sluggishness in home sales over the rest of the year.”
As such, Fannie has pulled its total home sales forecast back to 4.78 million in 2024 — down from 4.81 million in the prior forecast, though still up 0.5% from last year’s sales figure if realized. Fannie’s forecast now calls for roughly 4.13 million units in existing home sales, up 1% year over year, but just 651,000 new home sales, an annual pullback of 2.2%. Sales are “poised to stay lower for longer,” the GSE predicted, due to insufficient purchase demand at the current price point.
Enough improvement in affordability is projected next year to eventually bring additional homebuyers from the sidelines, bringing Fannie’s total home sales forecast to 5.19 million in 2025.
