Analysts predict market slowdown amid higher-than-anticipated rates
Home sales and mortgage originations may become more subdued than anticipated following the higher mortgage rates observed in February.
That is according to the Economic and Strategic Research (ESR) Group at Fannie Mae, which has revised its expected year-end 30-year fixed mortgage rate to 6.4%, a rise from the previously predicted 5.9%.
In its analysis, the ESR Group cited “strong headline jobs numbers and hotter-than-expected inflation data” as the reason for the Federal Reserve’s “less aggressive rate-cutting path.”
The group also noted that the Fed isn’t likely to initiate monetary policy easing in the short term, even amid the “mixed signals” from labor market metrics and the anticipation of a return to disinflation.
But it did maintain a somewhat positive outlook on existing home sales, stating an upward trend could be driven by increased activity from households that need to relocate due to life events and are therefore less affected by the interest rate lock-in effect.
In addition, the group pointed to the recent increase in new home listings and the relative strength observed in the “good time to sell” component of the Fannie Mae Home Purchase Sentiment Index and said these indicators suggest that the market will likely continue its gradual recovery over the course of the coming months.
“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,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
“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.”
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