Mortgage rates have fallen in recent months, but Fannie Mae Economists said Wednesday that this will not be enough to increase the number of homes sold in the foreseeable future.
Fannie Mae’s Economic and Strategic Research (ESR) Group has revised downward its forecasts for home sales in 2024 and 2025, based on a number of reliable metrics that “have changed little in response to the more favorable interest rate environment.” These metrics include the number of mortgage applications, requests for home tours and online listing views.
ESR Group now expects 4.78 million home sales in 2024 (up from 4.81 million in the previous forecast) and 5.19 million sales in 2025 (up from 5.26 million). The estimates are also based on Fannie’s recent consumer survey, in which only 17% of respondents said it was a “good time to buy a home.”
“At first glance, the lower interest rate environment should have a positive impact on home sales by softening the so-called lock-in effect and also improving affordability overall,” said Mark Palim, vice president and deputy chief economist at Fannie Mae, in a statement.
“However, high-frequency data such as mortgage applications, requests for home tours and listing views suggest that many prospective home buyers remain hesitant to take the plunge. Even with moderately lower mortgage rates, affordability remains near historic lows due to the high price of homes relative to income. As a result, we expect home sales to remain sluggish for the rest of the year.”
ESR Group noted that demand for refinancing has increased in response to lower mortgage rates, which should provide stability to lending volumes over the next 18 months.
“Our forecast for total mortgage loans in 2024 remained essentially unchanged at $1.7 trillion, while our forecast for 2025 was revised slightly upward to $2.2 trillion, with an upgrade in refinance loans largely offsetting a downward revision in purchase loans,” the economists said.
Fannie Mae expects mortgage rates to average 6.4% by the end of this year and 5.9% by the end of next year. HousingWireInterest rates on 30-year conventional loans averaged 6.68%, according to the Mortgage Rates Center on Wednesday.
Continuing an existing trend, Fannie economists expect new-home sales to continue to outpace existing homes, “as strong builder margins are likely to lead to concessions in coming quarters.” However, a backlog of homes under construction that have yet to be sold is likely to lead to a “near-term slowdown in housing starts… until that inventory can be sold.”
The ESR Group continues to forecast a “soft landing” for the US economy due to the cooling of inflation and the expectation of a The US Federal Reserve rate cut. The group also mentioned the rising unemployment rate, which reached 4.3% in July, but believes that this increase is at least partly due to temporary layoffs rather than permanent job losses.
