It adjusts housing and economic outlook
Fannie Mae’s Economic and Strategic Research (ESR) Group has downgraded its forecast for home sales in 2024, citing persistent affordability constraints as the main factor limiting buyer activity.
Despite an increase in home listings, the ESR Group now projects total home sales of 4.82 million for the year, representing a modest 1.3% annual gain, down from the previously forecast 2.8%.
“Unfortunately, we’re still not forecasting a ramp-up in housing activity, which will require some combination of continued household income growth, a further slowing of home price appreciation, or a decline in mortgage rates to bring affordability within range of many waiting for first-time and move-up homebuyers,” Fannie Mae chief economist Doug Duncan said in a recent report.
The ESR Group noted that the recent rise in listings might indicate that homeowners are no longer delaying moves due to the “lock-in effect”, possibly due to a general upward recalibration in consumer mortgage rate expectations following the historically low rates of the pandemic period.
While housing inventory remains tight by historical standards, supply is gradually increasing. The ESR Group views this as consistent with an expected deceleration in home price growth.
On the broader economic front, the ESR Group has also revised its 2024 real gross domestic product (GDP) growth outlook downward to 1.6% on a Q4/Q4 basis. This adjustment reflects downward revisions to Q1 2024 GDP data and recent indicators showing slowing income and spending growth.
“The economy appears to be slowing, and recent readings offer hope that inflation is cooling after progress on that front stalled in the first quarter – a trend that will likely need to be sustained for the Fed to feel comfortable cutting rates,” Duncan said.
Despite encouraging recent inflation data, the ESR Group believes the Federal Reserve will need to see several consecutive cool reports to gain confidence that inflation is sustainably returning to its 2% target.
Given ongoing resilience in nonfarm payroll growth and volatility in inflation readings, the ESR Group now anticipates only one Fed rate cut this year, in December, down from the previously projected two cuts.
The labor market is showing signs of a gradual slowdown, with the unemployment rate increasing to 4% in the June report. However, this cooling in the job market has not yet translated into improved housing affordability or increased sales activity.
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