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Home price appreciation should slow dramatically next year if listings continue to surge but would-be homebuyers still have trouble finding properties that they can afford, economists say.
Economists at Fannie Mae and the Mortgage Bankers Association are predicting that annual home price appreciation will fall to about 3 percent by the final quarter of 2025, less than half the current rate. That’s a national forecast, so many local markets where supply exceeds demand could see price declines — some already have.
Realtor.com data shows active for-sale listings were up 37 percent in June from a year ago, but the pace of sales remains subdued, Fannie Mae economists said Tuesday in commentary accompanying the release of their latest economic and housing forecasts.
The National Association of Realtors reported Tuesday that June home sales were down 5.4 percent from a year ago and that the median sales price was up 4.1 percent from a year ago, to an all-time high of $462,900.
Doug Duncan
“The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises,” Fannie Mae Chief Economist Doug Duncan said in a statement. “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.”
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Home prices have shown surprising strength this year, with Fannie Mae’s Home Price Index projected to show home values rose 6.9 percent from a year ago during the second quarter.
But markets where listings are still below pre-pandemic levels are experiencing the strongest price appreciation. In some markets where listings have surged past pre-pandemic levels, home prices are already starting to come down, Fannie Mae economists noted, citing Zillow data.
Zillow data shows home prices continued to appreciate in 46 of the 50 largest metro areas in June, led by San Jose (12 percent), Hartford (10.5 percent), San Diego (9.4 percent), Providence (7.7 percent) and Los Angeles (7.6 percent).
But Zillow reported home values were down from a year ago in June in four big metros: New Orleans (-6 percent), Austin (-4.6 percent), San Antonio (-2.7 percent), and Birmingham (-0.6 percent).
“Many large metros in the Sunbelt … now have inventory levels that match or even exceed for-sale inventories in 2019,” Fannie Mae economists said, with total inventories in Florida and Texas “at or even a bit above” where they were before the pandemic.
“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 said. “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.”
The varied market conditions have Fannie Mae economists predicting that new home sales will decline slightly this year, while sales of existing homes may see only a small bump. Sales of new and existing homes are expected to climb 9.3 percent next year.
Home price appreciation expected to cool
Source: Fannie Mae and Mortgage Bankers Association forecasts, July 2024.
In their first update of their forecast for home price appreciation since April, Fannie Mae economists said they expect home price appreciation will cool to 6.1 percent by the end of this year and to 3 percent by Q4 2024. Due largely to the unexpected strength in home prices so far this year, that’s up from 4.8 percent and 1.5 percent in the April forecast.
“We have modestly upgraded our home price outlook for 2024 largely based on these stronger incoming data for the first half of the year, but we continue to expect deceleration going forward as affordability constraints weigh on home purchase demand,” Fannie Mae economists said.
In a July 19 forecast, economists at the Mortgage Bankers Association (MBA) laid out a similar path for national home price appreciation to fall to 4.5 percent annually by Q4 2024 and 3.3 percent by the end of next year.
Mortgage rates projected to ease
Source: Fannie Mae and Mortgage Bankers Association forecasts, July 2024.
MBA and Fannie Mae forecasters are also aligned in their expectations that mortgage rates will continue retreating below 7 percent this year and next.
Fannie Mae economists project rates on 30-year fixed-rate mortgages will decline to an average of 6.7 percent during Q4 2024 and to 6.2 percent by Q4 2025.
The MBA’s slightly more optimistic forecast envisions rates averaging 6.6 percent in Q4 2024 before falling to 6.0 percent during Q4 2025.
Fannie Mae economists say they now expect the Federal Reserve to cut rates in both September and December, due to two consecutive lower-than-expected prints of the Consumer Price Index and signs the jobs market is cooling.
Economists at the mortgage giant expect the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Index, to end the year at 2.5 percent — half a percentage point above its 2 percent target. The PCE price index fell to 2.6 percent in May and data for June will be released July 26.
Home sales expected to rebound in 2025
Source: Fannie Mae and Mortgage Bankers Association forecasts, July 2024.
Fannie Mae economists are more pessimistic about the outlook for new home sales this year and next than their counterparts at the MBA, citing the likelihood that builders will pull back in Sunbelt markets where listings of existing homes are on the upswing.
Fannie Mae is forecasting new home sales will fall 4 percent this year, to 639,000, before rebounding by 12 percent next year, to 716,000.
“While metro-area single-family construction permitting data does not yet show a meaningful slowdown in new construction in the regions with the greatest growing supply of existing listings, historically, a looser resale market leads to a slowdown in new construction,” Fannie Mae forecasters said. “We have therefore modestly moved downward our single-family starts and new home sales forecasts to reflect comparative weakening in some of the top-building metros.”
The MBA is forecasting 6 percent growth in 2024 new home sales and another 13 percent surge in 2025, which would mean builders would have to sell 800,000 new homes in 2025 — 84,000 more than forecast by Fannie Mae.
Homebuilders’ margins “have been strong enough that they appear willing to help drive sales by offering consumers more incentives, so we are still expecting comparatively robust new construction over our forecast horizon — but more modest than previously forecast,” Fannie Mae economists said.
Both Fannie Mae and the MBA see sales of existing homes rebounding to around 4.5 million next year as appreciation slows and prices in some markets come down.
Fannie Mae’s forecast of 5.25 million sales of new and existing homes next year would represent 9.3 percent growth, while the MBA’s higher 2024 baseline has total home sales rising 7.2 percent next year, to 5.29 million.
While Fannie Mae hasn’t issued a forecast for 2026, MBA economists expect home sales to grow by an additional 5 percent to 5.55 million two years from now.
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