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Mortgage rates are likely to keep coming down this year and next, but it will take time for lower rates to translate into more sales, Fannie Mae economists said Wednesday.
Even with the recent pullback in mortgage rates, Fannie Mae forecasters now expect 2024 and 2025 home sales will come in slightly lower than they had forecast in July, as affordability “is unlikely to return to pre-pandemic levels anytime soon.”
Sales of existing homes were down 5.4 percent in June, to a weaker-than-expected annualized pace of 3.89 million, and 82 percent of Americans surveyed by Fannie Mae in July said it was a bad time to buy, economists at the mortgage giant noted in commentary accompanying their latest forecast.
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“Active inventories of homes for sale have been rising throughout this year, but this increase has not been because of a robust rise in listings of homes added to the market,” Fannie Mae forecasters said. While new listings have risen modestly, “the main driver is the fact that these listings have not been met with any increase in actual home sales, and therefore total inventories are rising and the average time on the market is increasing.”
The recent pullback in mortgage rates has renewed interest in refinancing among some homeowners with high rates, but rates need to come down even more to motivate many would-be homebuyers.
![](https://assets.inman.com/wp-content/uploads/2021/09/Mark-Palim-150x150.png)
Mark Palim
“On its face, the lower rate environment should be good for home sales by helping loosen the grip of the so-called ‘lock-in effect,’ in addition to aiding affordability more generally,” Fannie Mae Deputy Chief Economist Mark Palim said, in a statement. “However, high-frequency data, such as mortgage applications, home showing requests, and listings views, suggest that many potential homebuyers remain reluctant to make the jump.”
Economists with Fannie Mae’s Economic and Strategic Research (ESR) Group don’t see homebuying picking up “meaningfully until income growth begins to outpace home price growth and mortgage rates move closer to 6.0 percent.”
Home sales expected to grow by 8.5% in 2025
![](https://assets.inman.com/wp-content/uploads/2024/08/FNMA-HOME-SALES-FORECAST-AUG-24.png)
Source: Fannie Mae forecast, August 2024.
Fannie Mae economists now expect sales of new and existing homes will grow by just 0.5 percent this year, to 4.78 million, before surging by 8.5 percent in 2025 to 5.19 million.
That’s 27,000 fewer 2024 home sales than Fannie Mae had forecast in July, and 67,000 fewer 2025 home sales.
The pace of home sales — currently estimated at around 4.7 million a year, after adjusting for seasonal factors — is expected to rebound to 5.11 million next spring, and continue growing to 5.27 million in Q3 2025 and 5.43 million in Q4 2025.
Not only are mortgage rates expected to be lower by then, but national home price appreciation is slowing.
In July, Fannie Mae economists predicted national home price appreciation would cool to 6.1 percent by the end of this year and to 3 percent by Q4 2024. Prices could start to come down in Sunbelt markets where supply exceeds demand.
The Sunbelt had a “disproportionate in-migration wave following the pandemic” and saw a stronger construction boom in recent years, Fannie Mae economists noted in their latest forecast.
While the Sunbelt still has “comparatively less expensive homes than many Northeast and West Coast metros, the relative shift in affordability has been much more severe in recent years, so the normal pool of buyers are likely more stretched,” Fannie Mae economists said.
While inventories of for-sale listings are on the rise in Southern and Mountain West states, they’ve “hardly budged on average for the rest of the country,” Fannie Mae economists said.
Purchase lending forecast to grow by 15% in 2025
![](https://assets.inman.com/wp-content/uploads/2024/08/FNMA-ORIGINATIONS-FORECAST-AUG-24.png)
Source: Fannie Mae forecast, August 2024.
Elevated home prices are one reason Fannie Mae economists expect purchase loan volume to grow by 8 percent this year, to $1.325 trillion. But that’s $31 billion less than July’s forecast, “given the somewhat weaker projected path for home sales.”
Purchase lending is expected to grow by another 15 percent next year, to $1.518 trillion, if the pace of sales ticks up in the second half of the year.
While mortgage lenders are expected to see even stronger growth in refinancing, it would be from a comparatively low baseline of $248 billion established in 2023.
Fannie Mae economists expect refinancing volume to grow by 51 percent this year, to $374 billion, and by another 68 percent in 2025, to $627 billion.
Mortgage rates expected to drop below 6%
![](https://assets.inman.com/wp-content/uploads/2024/08/FNMA-MBA-RATE-FORECAST-AUG-24.png)
Source: Fannie Mae and Mortgage Bankers Association forecasts, August 2024.
Economists at Fannie Mae and the Mortgage Bankers Association are aligned in their view that the Federal Reserve is on the verge of launching a rate-cutting campaign that will help bring rates on 30-year fixed-rate mortgages below 6 percent by Q4 2025.
With “inflation continuing to decelerate and labor markets softening to at least some extent, a period of rate cuts going forward is expected, but the magnitude and speed of such cuts is highly conditional on incoming data,” Fannie Mae economists said.
Last month, Fannie Mae predicted rates on 30-year fixed-rate mortgages would average 6.7 percent in Q4 2024 and 6.2 percent during Q4 2025. The latest forecast sees mortgage rates averaging 6.4 percent in Q4 2024 and 5.9 percent in Q4 2025.
Economists at the mortgage giant noted that while they continue to expect a soft landing as inflation cools, interest rates remain volatile. If bond market investors who fund most mortgages conclude that the Fed has waited too long to cut rates and the economy is headed for a recession, mortgage rates could come down further and faster.
“The recent jump in the unemployment rate to 4.3 percent helped drive a growth scare and related volatility in equity markets,” Fannie Mae economists said. “More recent data appear to have soothed many market fears of quickly deteriorating economic activity, though long-term interest rates remain significantly lower than a month ago as of this writing.”
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