Whether it’s refining your business model, mastering new technologies, or discovering strategies to capitalize on the next market surge, Inman Connect New York will prepare you to take bold steps forward. The Next Chapter is about to begin. Be part of it. Join us and thousands of real estate leaders Jan. 22-24, 2025.
This year is shaping up to be the worst year for existing-home sales since 1995, and the recent runup in mortgage rates has economists thinking sales won’t rebound next year as convincingly as previously forecast if many would-be sellers continue to sit on the sidelines and buyers see fewer affordable options.
Economists at Fannie Mae and the Mortgage Bankers Association released forecasts Thursday that included dramatic downward revisions for projected home sales and a more cautious outlook on the prospects for mortgage rates to come down anytime soon.
With rates likely to stay well above 6 percent next year, many would-be sellers could continue to feel locked in by the low rate on their existing mortgage, economists said. The lack of for-sale inventory may keep propping up prices that soared in many markets during the pandemic, exacerbating affordability challenges for homebuyers.
TAKE THE INMAN INTEL INDEX SURVEY FOR NOVEMBER
“Long-run interest rates have moved upward over the past couple months following a string of continued strong economic data and disappointing inflation readings,” Fannie Mae Chief Economist Mark Palim said in a statement.
The run-up in rates has been driven by bond market investors’ expectations for stronger economic growth — which could bode well for the labor market and homebuyer demand, Palim said.
Mark Palim
“However, we expect inventories of homes added to the market, and therefore sales of existing homes, to remain subdued through next year, as the higher mortgage rate environment is likely to strengthen the ongoing lock-in effect,” Palim said. “How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon.”
Since hitting a 2024 low of 6.03 percent on Sept. 17, rates on 30-year fixed-rate conforming mortgages have climbed to 6.85 percent as of Wednesday, according to rate lock data tracked by Optimal Blue.
Rates expected to come down gradually
Source: November, 2024 forecasts by Fannie Mae and the Mortgage Bankers Association.
Last month, Fannie Mae economists were predicting that rates on 30-year fixed-rate mortgages would fall to 6 percent by the end of this year and keep dropping to 5.6 percent by the end of next year.
In their latest forecast, economists with Fannie Mae’s Economic and Strategic Research (ESR) Group think rates will be closer to 7 percent at the end of this year, and remain above 6 percent in 2025 and 2026.
Economists at the Mortgage Bankers Association (MBA) are charting out a similar path for rates in the years ahead, predicting rates on 30-year fixed-rate mortgages will still be at 6.4 percent at the end of next year and average 6.3 percent in 2026.
Bond market investors are demanding higher yields on government debt and mortgage-backed securities due to strong consumer spending and hotter inflation data that signal the economy remains on strong footing, Fannie Mae economists said in commentary accompanying their latest forecast.
Although the Federal Reserve has cut short term rates twice this year — on Sept. 18 and Nov. 7 — long-term rates have been climbing on expectation of less Fed monetary policy easing over the next several quarters, Fannie Mae economists said.
The CME FedWatch tool, which tracks futures markets to gauge investor expectations of future Fed moods, shows investors think the odds of another Fed rate cut on Dec. 18 are only slightly better-than-even.
Fannie Mae economists believe some of the recent upward movement in long-term rates “may also be due to market expectations of more expansive fiscal policy following the results of the 2024 election, as well as general heightened policy uncertainty.”
Lawrence Yun
In a Nov. 8 forecast, National Association of Realtors Economist Lawrence Yun said mortgage rates could fall next year if policies implemented by the incoming Trump administration boost home construction and bring more people back to the workforce.
Fannie Mae economists note that “there is uncertainty over future changes to fiscal, trade, and immigration policy” after the November election.
“Our forecast at this point does not explicitly take into account any potential changes in these areas as we await more clarity on expected policy outcomes,” they said.
Subdued rebound in sales expected
Source: Fannie Mae November 2024 housing forecast.
The dramatically different outlook for mortgage rates in the years ahead prompted economists with Fannie Mae’s ESR Group to slash their outlook for 2024 and 2025 home sales.
“We now expect 2024 total home sales will be 4.71 million (previously 4.77 million) and 2025 home sales will be 4.93 million (previously 5.24 million),” Fannie Mae economists said.
That would represent a 1 percent drop in 2024 total home sales from a year ago, following the 16 percent decline in 2023 sales to 4.76 million.
Total home sales are expected to rebound by 4.6 percent next year, bolstered by projected 7.2 percent growth in new home sales, to 754,000.
In their first attempt at forecasting home sales 2 years from now, Fannie Mae economists predicted total home sales will rebound to 5.68 million in 2026 “as mortgage rates ease, affordability improves modestly, and lock-in effects weaken.”
With existing home sales falling to an annual pace of 3.84 million a year in September, Fannie Mae economists said they now expect only 4.01 million existing homes to change hands this year, which would make 2024 the slowest year since 1995.
Fannie Mae economists still expect sales of existing homes to grow by 4 percent next year to 4.18 million. But that’s 345,000 fewer sales than projected in October. Existing home sales are projected to post double-digit gains in 2026, growing by 17 percent to 4.89 million.
Economists at the MBA are forecasting that sales of existing homes will grow by 5 percent next year, to 4.24 million, followed by 7 percent growth in 2026, when the MBA projects sales of existing homes will hit 4.54 million.
Yun forecasts that sales of existing homes will grow by 9 percent next year and by 13 percent in 2026 if mortgage rates remain near 6 percent and employers add 2 million jobs a year.
Rising home prices bolster mortgage originations
Source: Fannie Mae November 2024 housing forecast.
The expected slowdown in sales would also dent mortgage originations, although continued home price appreciation means lending is not expected to decelerate as rapidly as sales.
Fannie Mae economists revise their home price appreciation forecasts on a quarterly basis. The last forecast, issued in October, predicted home prices will rise 5.8 percent this year but that national home price appreciation will decelerate to 3.6 percent next year.
Fannie Mae economists this month knocked $14 billion off of their October forecast for 2024 single family mortgages, and $102 billion from their previous 2025 forecast.
While 2024 home sales are expected to be down slightly from last year, continued home price appreciation is projected to boost purchase loan originations by 1 percent, to $1.29 trillion.
Purchase loan dollar volume is then expected to grow by 9 percent next year, to $1.41 trillion, and by another 20 percent in 2026, to $1.7 trillion.
Refinancing volume is expected to more than triple from $221 in 2023 to $705 billion in 2026.
Single-family housing starts rebounding
Source: Fannie Mae November 2024 housing forecast.
Fannie Mae economists continue to think single-family housing starts bottomed in 2023 and will grow by 6 percent this year, to just over 1 million homes.
Single-family starts are projected to slip 1 percent next year, to 994,000, before posting 5 percent growth in 2026.
“Our forecast for single-family housing starts is slightly stronger in the near term,” Fannie Mae economists said. “Single-family starts rose to a five-month high in September. Overall, we continue to expect that the shortage of homes relative to the population will help spur residential construction in the coming years.”
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
Email Matt Carter
