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Housing Experts Revise Mortgage Rate Forecasts for Remainder of 2024
At the start of the year, housing experts and homebuyers were looking forward to better buying conditions – interest rates were about to fall, a change that was expected to release stocks and slow the rise in house prices.
That perspective has largely changed.
Almost halfway through 2024, the long-awaited interest rate cuts have not yet happened, house prices are still growing and affordability remains a challenge.
“We all expected that at this time of year we would see stronger home sales activity and that interest rates would [would be] fell,” Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR), told Yahoo Finance.”[Rates] it’s back to the 7% range, which hurts home sales activity and changes who can afford to buy a home.”
See more information: Mortgage Rates As High As 7% – Is This A Good Time To Buy A Home?
Given the uncertainty, experts are widely revising their forecasts on rates and prices for the rest of 2024.
Experts are revising their forecasts on mortgage rates and home prices for the rest of the year. (Juan Silva via Getty Images)
Higher Mortgage Rates for Longer
Persistent inflationary pressure has led the Federal Reserve to maintain its tight monetary policy until new data shows consistent signs of price reduction.
This likely means two things for the housing market: Mortgage rates will stay higher for longer and they will remain relatively high even if and when the Fed lowers the benchmark interest rate – a move that could influence the mortgage market.
“I don’t see mortgage rates falling significantly this year,” Orphe Divounguy, senior economist at Zillow, told Yahoo Finance. “Mortgage rates are notoriously difficult to predict, but I would be surprised if we ended the year with rates below 6%.”
Many housing experts and financial institutions have revised their rate forecasts upward. Fannie Mae raised its year-end forecast to 6.4% from 5.9% at the start of the year. The modified NAR its forecast from 6.3% to 6.5%. Wells Fargo May Economic Summary adjusted its monthly rate outlook to 6.50% from 6.05% in January.
Year-End Mortgage Rate Forecast (Fannie Mae, National Association of Realtors, Wells Fargo)
Lautz attributed the change in expectations to persistent housing inflation, which accounts for about a third of the Consumer Price Index (CPI) – an indicator used by the Fed to measure inflation. Rent and owner-equivalent rent (OER), which measures housing costs, were two of the three biggest contributors to inflation in April.
“There are more people in the rental market because they can’t save for a down payment and they can’t save for a down payment because the rent is high,” Lautz said, adding that this feels like “feedback.” cycle – one in which inflationary pressure keeps rates high, which increases housing costs, which in turn puts pressure on renters.
The story continues
According to CoreLogic, the average single-family rent increased 3.4% annually to $2,100 in February, the biggest annual gain in the past 10 months.
The market is now forecasting a roughly 50% chance that the Fed will cut rates by 25 basis points for the first time this year in September. according to the CME FedWatch tool.
Rising house prices
Housing experts say home prices will continue to rise throughout the rest of 2024.
Fannie Mae predicts almost 5% price appreciation until the end of 2024. NAR predicts the year-end median price of existing homes will reach $393,000, up from $387,000 in 2023.
“One thing that seems pretty solid is that home prices will continue to rise, and the reason is we don’t have housing inventory,” Lautz said.
Doug Duncan, chief economist at Fannie Mae, agreed. Even with high mortgage rates, inventory shortages are “causing pricing issues,” he said.
Total housing stock increased by about 5% to 1.11 million at the end of March, according to NAR data. In comparison, the average inventory between 1982 and 2024 was 2.23 million units. Home listings for sale in March were equivalent to just 3.2 months of supply. A balanced real estate market has around 6 months of supply.
Housing data shows that homebuyers are facing a price crisis – nearly 30% of homes sold above listing price in March. Annual U.S. national home prices also rose more than 6% in February, according to the S&P CoreLogic Case-Shiller Index.
“We continue to see…home prices continue to rise,” Lautz said. “There are still bidding wars and three offers for every house listed last month.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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