At the beginning of the year, housing experts and home buyers were looking forward to better purchasing conditions; interest rates were about to fall, a shift expected to free up inventories and cool rising home prices.
That view has largely changed.
Almost halfway through 2024, the long-awaited interest rate cuts have yet to take place, house prices are still rising and affordability remains a challenge.
“We all expected to see stronger home sales activity and stronger interest rates at this point in the year [would be] down,” Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR), told Yahoo Finance.[Rates] has risen back into the 7% range, and that is putting a damper on home sales activity, and changing who can buy a home.”
Read more: Mortgage rates above 7% – is this a good time to buy a house?
Given the uncertainty, experts are widely revising their forecasts on rates and prices for the remainder of 2024.
Longer mortgage interest
Persistent inflationary pressures have prompted the Federal Reserve to maintain tight monetary policy until further data shows consistent signs of price easing.
This likely means two things for the housing market: Mortgage rates will stay higher for longer and remain relatively high even if and when the Fed cuts benchmark rates – a move that could impact the mortgage market.
“I don’t see mortgage rates falling significantly this year,” Zillow senior economist Orphe Divounguy told Yahoo Finance. “Mortgage rates are notoriously difficult to predict, but I would be surprised if we ended the year with an interest rate below 6%.”
Many housing experts and financial institutions have revised their interest rate forecasts upwards. Fannie Mae raised its year-end forecast to 6.4% from 5.9% earlier this year. The NAR changed its forecast from 6.3% to 6.5%. Wells Fargo’s May economic summary adjusted its monthly interest rate outlook to 6.50% from 6.05% in January.
Lautz attributed the changing expectations to persistent housing inflation, which makes up about a third of the consumer price index (CPI) – an indicator used by the Fed to measure inflation. Rent and equivalent rent (OER), which measure housing costs, were two of the three biggest contributors to inflation in April.
“There are more people in the rental market because they can’t afford to save for a down payment, and they can’t afford to save for a down payment because rent is high,” Lautz said, adding that this seems like a “feedback”. loop – a loop in which inflationary pressures keep rates high, causing housing costs to rise, which in turn puts pressure on renters.
According to CoreLogic, the average rent for single-family homes rose 3.4% annually to $2,100 in February, the largest annual increase in the past ten months.
According to the CME FedWatch Tool, the market now estimates a roughly 50% chance that the Fed will cut rates by 25 basis points for the first time this year in September.
Rising house prices
Housing experts say home prices will continue to rise through the rest of 2024.
Fannie Mae predicts a price increase of almost 5% by the end of 2024. NAR predicts that the average price for existing homes will be $393,000 by the end of the year, compared to $387,000 in 2023.
“One thing that seems pretty solid is that housing prices are going to continue to rise, and the reason is that we don’t have housing inventory,” Lautz said.
Doug Duncan, chief economist for Fannie Mae, agreed. Even with high mortgage rates, the shortage of inventory is “causing the pricing problem,” he said.
According to NAR data, total housing inventory rose about 5% to 1.11 million at the end of March. By comparison, the average inventory between 1982 and 2024 was 2.23 million units. The number of homes for sale in March amounted to only 3.2 months of supply. In a balanced housing market there is approximately six months supply.
Housing data shows that home buyers are facing a serious price crisis: almost 30% of homes were sold above asking price in March. Annual U.S. home prices also rose more than 6% in February, according to the S&P CoreLogic Case-Shiller Index.
“We continue to see home prices continue to rise,” Lautz said. “There are still bidding wars and three offers for every house listed last month.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement and more
Read the latest financial and business news from Yahoo Finance
