Mortgage rates will likely remain “higher for longer” than previously forecast, according to Fannie Mae’s Economic and Strategic Research (ESR) Group.
Because the job market remains strong and inflation continues to rise faster than expected, the number of rate cuts by the Federal Reserve could be curtailed later this year.
As a result, Fannie Mae has downgraded its expectations for total home sales and mortgage originations in 2024.
The ESR Group now expects the 30-year fixed mortgage rate to end the year at 6.4%, up from the 5.9% predicted in last month’s forecast.
Despite this, the ESR Group expects existing-home sales will trend upwards in 2024 due in part to increased activity by households likely needing to move due to life events.
New home listings have been steadily increasing, and more homeowners consider it a “good time to sell” according to the most recent Fannie Mae Home Purchase Sentiment Index report.
These are evidence that housing market activity is likely to continue its gradual thaw in the months and quarters ahead, the firm says.
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” says Doug Duncan, senior vice president and chief economist for Fannie Mae, in a statement. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast, as markets continue to evolve their expectations of future monetary policy.”
“Still, while we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 – even if mortgage rates remain elevated,” Duncan adds.
Photo: Max Harlynking