At Inman Join Las Vegas, July 30-Aug. 1 2024, the noise and misinformation can be banished, all of your massive questions can be answered, and new enterprise alternatives can be revealed. Be part of us.
A weaker-than-expected spring has prompted Fannie Mae economists to chop their forecast for 2024 house gross sales, to the purpose the place it’s now wanting like this yr will hardly be higher than final yr.
However extra listings are beginning to come onto the market — significantly within the Solar Belt — and the economic system is cooling at a tempo that ought to assist mortgage charges keep on their present downward trajectory, economists on the mortgage large mentioned Friday.
Doug Duncan
“The economy appears to be slowing, and recent readings offer hope that inflation is cooling after progress on that front stalled in the first quarter – a trend that will likely need to be sustained for the Fed to feel comfortable cutting rates,” Fannie Mae Chief Economist Doug Duncan mentioned in a assertion. “Additionally, the labor market is showing signs of a gradual slowdown, with the unemployment rate creeping up to 4 percent in the June report.”
However house gross sales gained’t choose up till there’s “some combination of continued household income growth, a further slowing of home price appreciation, or a decline in mortgage rates to bring affordability within range of many waiting first-time and move-up homebuyers,” Duncan mentioned.
TAKE THE INMAN INTEL INDEX SURVEY FOR JUNE
Rebound in house gross sales pushed again to 2025
Supply: Fannie Mae Housing Forecast, June 2024.
Gross sales of present houses fell 1.9 p.c in April, to an annualized tempo of 4.14 million.
“This was somewhat weaker than we had anticipated, and recent purchase mortgage application data also point to near-term weakness,” Fannie Mae economists mentioned in commentary accompanying their newest forecast. “As such, we have downwardly revised our existing home sales outlook and now project 2024 existing sales to total 4.15 million (previously 4.20 million). This now represents only a minor increase of 1.5 percent from 2023 total year existing sales.”
That near-term weak spot was confirmed Friday with the discharge of the newest present house gross sales knowledge for Might from the Nationwide Affiliation of Realtors, which confirmed gross sales fell for the third month in a row, to a seasonally adjusted annual charge of 4.11 million.
“This sales softness is happening while listings continue to rise. We read this divergence to mean more homeowners are no longer putting off their decision to sell, despite the so-called ‘lock-in effect,’ perhaps out of a belief that mortgage rates will remain higher for longer,” Fannie Mae economists mentioned. “However, affordability constraints are limiting the number of buyers willing and able to purchase these homes.”
House costs are sometimes “sticky” on the way in which down, however a “gradual loosening” of stock is prone to decelerate house value progress, Fannie Mae economists predicted.
NAR put the months provide of stock at 3.5 in April, up from 3.0 months a yr in the past. And whereas the numbers for Might had been too late for Fannie Mae forecasters to include into their forecast, months provide of stock was up once more final month, to three.7 months, NAR reported.
However these are nationwide numbers, and Fannie Mae forecasters famous there’s a “strong geographic skew” to latest listings progress.
“Many of the previously hot Sun Belt markets are where listings are disproportionately rising. These metros also tend to be markets with a higher degree of new construction in recent years, and now some of them have for-sale inventory levels similar to 2019.”
Near half of the full progress in listings nationwide during the last yr will be chalked as much as Florida and Texas.
“This suggests that these markets will experience comparative price softness going forward while supply remains comparatively tight in many of the northeast and midwestern markets,” Fannie Mae economists mentioned.
For now, the shortage of present houses in lots of markets helps prop up new house development and gross sales.
However gross sales of recent houses dipped 4.7 p.c from March to April, to a seasonally adjusted annual charge of 634,000. That’s a 7.7 p.c decline from a yr in the past.
With a 9.1 month provide of recent houses available on the market in April — the best since November 2022 — Fannie Mae economists have lowered their expectations for brand new house gross sales in Q2 2024 and Q3 2024.
Fannie Mae now expects 2024 new house gross sales keep flat from a yr in the past at 667,000, however develop by 13 p.c subsequent yr.
Easing mortgage charges are anticipated to assist increase gross sales of present houses by 9 p.c subsequent yr, to 4.51 million.
Mortgage charges anticipated to maintain falling
Supply: Fannie Mae Housing Forecast, June 2024; MBA Mortgage Finance Forecast, Might 2024.
Current financial knowledge, together with the Client Worth Index (CPI) and Producer Worth Index (PPI) coming in cooler in Might than latest months, has Fannie Mae economists regaining confidence that mortgage charges have room to return down this yr.
“This welcome news on the inflation front led to a significant drop in the 10-year Treasury rate and an increase in the odds of rate cuts this year,” Fannie Mae forecasters mentioned.
Final month, Fannie Mae forecasters predicted charges on 30-year fixed-rate loans wouldn’t drop under 7 p.c this yr, and would nonetheless be averaging 6.6 p.c in This autumn 2025.
With mortgage charges already below 7 p.c, Fannie Mae is forecasting that 30-year fixed-rate loans will drop to six.7 p.c throughout This autumn 2024, and to six.3 p.c by the top of subsequent yr.
Of their most up-to-date forecast, launched Might 16, economists on the Mortgage Bankers Affiliation envisioned a steeper decline, with 30-year fixed-rate loans hitting 6.5 p.c by the top of this yr, and dropping under 6 p.c within the last three months of subsequent yr.
Whereas Fannie Mae economists don’t anticipate the Fed to chop charges till December, “additional soft inflation reports, especially if combined with a growing acceptance that payroll employment is perhaps overstated, makes a September cut still a real possibility.”
The Federal Reserve’s most well-liked inflation gauge, the Private Consumption Expenditures (PCE) value index, is ready to be up to date on June 28.
House costs propping up buy mortgage originations
Supply: Fannie Mae Housing Forecast, June 2024.
Diminished expectations for house gross sales imply Fannie Mae forecasters now anticipate buy mortgage quantity to complete $1.3 trillion in 2024, $20 billion lower than final month’s forecast.
However due to rising house costs, that might nonetheless characterize 10 p.c progress from the $1.22 trillion in buy mortgages originated final yr.
As mortgage charges come down and residential value appreciation decelerates subsequent yr, Fannie Mae tasks buy mortgage originations will develop by a good stronger 14 p.c in 2025, to $1.5 trillion.
The steeper glide path Fannie Mae economists now envision for mortgage charges is anticipated to translate into a further $4 billion in refinancing quantity this yr and subsequent when in comparison with final month’s forecast.
Refinance volumes at the moment are anticipated to develop by 50 p.c this yr, to $372 billion, and by 46 p.c subsequent yr, to $544 billion.
Get Inman’s Mortgage Transient Publication delivered proper to your inbox. A weekly roundup of all the most important information on this planet of mortgages and closings delivered each Wednesday. Click on right here to subscribe.
