Favorable reports regarding inflation and labor of late have led Fannie Mae’s Economic and Strategic Research (ESR) Group to revise their forecast, which now calls for two rate cuts before the end of the year.
According to its July forecast, Fannie now believes that the Federal Reserve is likely to cut rates in September and then again in December. That’s a shift from the month prior, when, amid noisy inflation numbers, the forecast called for just one cut in December. July’s rate predictions are more in line with its expectations earlier in the year; Fannie first predicted September and December rate cuts back in April before sticky inflation data made the ESR Group reconsider during the summer.
Two consecutive months with lower-than-expected inflation returns from the Consumer Price Index (CPI) report convinced Fannie economists to readjust back to their previous rate cut expectations.
“The June print of the CPI was well below consensus expectations and led to a downward revision to our near-term inflation outlook. … While two reports do not definitively establish a trend, recent inflation data have been encouraging and suggest further sustained progress is likely. We have reinstated our expectation for Federal Reserve rate cuts in both September and December (previously just December), as we believe the combination of slowing labor market conditions and encouraging inflation data will be sufficient for the Fed to begin easing policy soon,” ESR economists wrote in Fannie’s July Economic Developments report.
Regarding the housing market more directly, Fannie noted that home price growth was stronger than previously expected in the second quarter, though it expects that’s likely to moderate soon. Buyer demand remains severely constrained by unaffordability, and supply has been on a gradual upswing. Fannie’s current forecasts call for price growth to end 2024 at an annual rate of 6.1% and 2025 at an annual rate of 3.0%.
The uptick in supply, especially in many large Sun Belt cities, has additionally led to a downward revision in the ESR Group’s total 2024 new home sales forecast to 639,000 units, retreating from its June forecast of 667,000. Conversely, ESR has amended its existing home sales moderately upward due to inventory growth and what it described as “a modestly lower mortgage rate path.” That forecast now stands at 4.17 million units for full-year 2024, up from 4.15 million units projected in June.
