According to the Fannie Mae Economic and Strategic Research (ESR) Group, in an April 2024 analysis, “stronger-than-expected” economic and inflation data pushed interest rates even higher—leading financial markets to anticipate fewer Federal Reserve rate cuts this year.
While increasing mortgage rates pose significant challenges to the anticipated recovery in home sales this year (as well as homebuyer affordability in general) the ESR Group reports that new listings of homes for sale have continued to rise.
“Financial markets rapidly repriced their interest rate expectations following hotter-than-expected inflation reports and ongoing strong payroll employment gains,” said Hamilton Fout, Fannie Mae VP of Economic and Strategic Research. “While we still expect economic growth and inflation to moderate going forward—and, thus, for mortgage rates to drift downward—interest rates existing in a ‘higher for longer’ state seems to be an increasingly real possibility in the eyes of market participants, as well as some homebuyers and sellers. While we’ve recently seen evidence that some potential home sellers are becoming more acclimated to the higher mortgage rate environment and putting their homes on the market, the recent move upward in rates is yet another headwind to the recovery of home sales, and it intensifies longstanding affordability challenges for consumers.”
While the ESR Group predicts that existing home sales will climb moderately this year, it anticipates the flow of new listings to surpass home sales, which should help progressively thaw housing inventories and contribute to slowing home price growth. However, based on incoming home price data, which is still coming in strong, the ESR Group forecasts home prices to grow 4.8% in 2024, up 1.6 percentage points from the previous quarter’s projection, and another 1.5% in 2025.
While interest rate cuts appear to be on hold as a result of recent solid economic statistics and hot inflation reports, the ESR Group predicts slower employment and economic growth, as well as progress toward 2% inflation over its forecast horizon. However, new data have triggered a rethink of the speed of decelerating inflation, and the ESR Group now anticipates the Consumer Price Index (CPI) to end 2024 at 3.1% annual rate, up from 2.5% originally projected.
To read the full report, including more data, reports, and methodology, click here.
