Fannie Mae Economists Expect US House Price Growth To Moderate

(RTTNews) - U.S. house price growth is likely to moderate after being stronger than expected in the second quarter, thanks to a mix of increasing supply and affordability-constrained demand, the mortgage finance provider Fannie Mae's Economic and Strategic Research Group said Tuesday.

Home price growth is likely to moderate soon and end 2024 and 2025 at annual rates of 6.1 percent and 3.0 percent, respectively, the ESR Group said in its July commentary report. In April, the group had forecast house price growth of 4.8 percent and 1.5 percent.

"Despite a more than 30 percent increase in listings of homes available for sale compared to a year ago, certain indicators of housing activity remain soft, as evidenced in part by fewer existing home sales in May compared to a year ago," Fannie Mae said.

"This dynamic of gradually increasing supply and affordability-constrained demand is expected to cause home prices, which were up 3 percent on a non-seasonally adjusted basis in the second quarter, according to the Fannie Mae Home Price Index, to moderate going forward."

The ESR Group downgraded the total home sales forecast to 4.81 million in 2024 from 4.82 million previously, and to 5.26 million in 2025 from 5.27 million.

Economists attributed the downward revision to home prices and sales partly to the recent regional volatility in listings and home prices, as many large metros in the Sunbelt now have inventory levels that match or even exceed for-sale inventories in 2019.

Fannie Mae economists kept their 2024 GDP growth forecast unchanged at 1.6 percent and raised the projection for next year to 2.0 percent from 1.9 percent.

"Given the weaker inflation numbers and signs of cooling in the labor market, our baseline expectation is now that the Fed will cut rates twice this year, in September and December," the ESR Group said.

Fannie Mae forecast the 30-year fixed mortgage rate to average 6.8 percent in 2024 and 6.4 percent in 2025.

Elsewhere on Tuesday, the real estate brokerage website Redfin reported that cancellations of house purchase deals in the U.S. hit a record for the month of June as buyers got cold feet due to high housing costs.

The number of houses sold decreased a seasonally adjusted 0.5 percent month-on-month, the biggest fall since October last year, to 417,179 units. The figure was down 1.1 percent from a year ago.

Buyers who are waiting on the sidelines in hopes that mortgage rates will drop even more may be doing so in vain as rates are unlikely to fall much in the next few months, and markets have already priced in a September rate cut, Redfin Economics Research Lead Chen Zhao said.