WASHINGTON – Despite a significant decline in mortgage rates and improved supply in some parts of the country, existing home sales are not expected to pick up meaningfully through the remainder of 2024, with the annual pace now forecast to be the slowest since 1995, according to the September 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
Recent data, including softness in pending home sales and purchase mortgage applications, continue to suggest limited home-purchase demand at current affordability levels. According to the ESR Group, existing home sales have not grown despite a nearly 20% increase in homes available for sale from year-ago levels, in part due to geographic variations.
Much of the increase in for-sale inventories has occurred in the Sun Belt and Mountain West regions, areas that also experienced some of the strongest home price growth in recent years, as well as robust new home construction. This creates both a large relative affordability shock in these states and greater competition for existing home sales stemming from the new construction. The ESR Group believes some combination of easing mortgage rates and soft home price growth relative to income growth in these regions will be needed before existing home sales begin to meaningfully rise.
The ESR Group’s economic growth outlook was mostly unchanged this month, as incoming data has been largely consistent with expectations. The ESR Group notes that the economy is likely shifting into a slower growth path, and as inflation moves closer to the 2% target, the Federal Reserve is poised to move monetary policy toward a more neutral stance. Still, the ESR Group believes the lagged effect of monetary policy is likely to keep real gross domestic product growth subdued in coming quarters before returning to the long-term trend by the end of 2025.
“Increasingly, regional variations in housing supply are creating divergent affordability conditions and experiences for consumers on both sides of the home sales transaction; however, taken as a whole, home sales activity, particularly on the existing side, remains near what we consider to be the floor of basic demographic and household mortgage demand,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
He added, “Supply has risen significantly in many Sun Belt states, where such factors as ease of new home development and increasing insurance costs are having an impact, but at the national level the supply shortage still very much applies. Although mortgage rates have fallen considerably in recent weeks, we’ve not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment. We think it’s likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate. Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability. Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995.”
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