According to the July 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group, strong growth in Q2 home prices was higher than expected but is expected to slow, ending 2024 and 2025 at annual rates of 3% and 6.1%, respectively.
Additionally, some measures of housing activity are still weak despite a more than 30% increase in listings of homes for sale compared to a year ago. Another indicator is the decrease in existing home sales in May compared to the same month last year.
“The housing market continues to wait for affordability to improve,” said Doug Duncan, Senior VP and Chief Economist at Fannie Mae, “even as the supply of new and existing homes for sale slowly rises.”
Fannie Mae Insights: 2024 Home Price Forecast
According to the Fannie Mae Home Price Index, home prices were up 3% on a non-seasonally adjusted basis in the second quarter. Going forward, however, this dynamic of steadily increasing supply and affordability-constrained demand is projected to cause home prices to decline. The ESR Group also points out the recent regional fluctuations in listings and property prices.
For instance, many major metro areas in the Sunbelt now have inventory levels that are comparable to or higher than those of the 2019 for-sale inventories. Due to a somewhat lower mortgage rate trend, the ESR Group revised upward its existing home sales prediction while downwardly adjusting its starts and new home sales forecasts.
“The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers,” Duncan said. “As such, despite more homes being listed for sale, actual home sales have not picked up. We continue to expect home price growth on a national level to decelerate—but remain positive—over the near term, but it should be noted that conditions often vary by region, particularly as it relates to supply.”
Duncan continued, “For instance, many Sunbelt metros are currently seeing significant increases in for-sale inventories, in part due to new construction, while supply in much of the Northeast and Midwest remains extremely tight. In aggregate, we expect these varied market conditions to lead to a slight decline in total new home sales nationally for the full year 2024, but a slight increase in existing home sales.”
Since incoming data have mostly confirmed expectations for slower growth, the ESR Group has only slightly revised its outlook for economic growth. Notably, the ESR Group revised its inflation forecasts downward and now projects that the Consumer Price Index (CPI) will end the year at 2.9%, while the core Personal Consumption Expenditures (PCE) Index—the Fed’s preferred inflation gauge—will end the year at 2.5%. This is due to two consecutive lower-than-expected prints of the PPI.
As a result of improving inflation data and indications of a labor market slowdown, the ESR Group has revised its prediction that the Federal Reserve would lower interest rates in September and December.
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