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In their final forecast for this year, Fannie Mae economists say rising mortgage rates will leave many prospective sellers feeling locked into existing loans, with existing home sales next year near a 30-year low. It is expected to remain at .
But forecasters at the mortgage giant said Monday that “high regional variation” in home sales means that many Sunbelt states, as well as parts of the Mountain West and Pacific Northwest, will see a decline in home sales. He said that means the pace will be more brisk than in other parts of the country.
Fannie Mae economists said in commentary accompanying their latest forecast that slowing home price growth means Americans could see wages rise faster than home prices next year for the first time since 2011. “This will help start to gradually improve affordability conditions for homebuyers.”
mark parim
“From an affordability perspective, mortgage rates are above 6%, home price growth has slowed from recent highs but remains positive, and supply remains positive,” said Mark Parim, Fannie Mae’s chief economist. remains below pre-pandemic levels, making 2025 a very similar year to 2024.” said in a statement.
A rise or fall in mortgage rates “could give prospective homebuyers the opportunity to take advantage of temporarily low interest rates, and we may see a period of increased housing activity due to lower interest rates,” Palim said. Ta.
Home sales are expected to bottom this year
Source: Fannie Mae Housing Forecast, December 2024.
Home sales failed to recover this year after falling sharply by 16% in 2023 as mortgage rates hit post-pandemic highs.
New home sales are expected to increase 4.1% this year to 693,000 units, while existing home sales are expected to decline about 1% to 4,058,000 units.
This year’s sales pace is expected to be 4.752 million units, the slowest in 30 years, and only 5.3% next year and 9.2% growth in 2026.
Fannie Mae forecasters said of the change from last month’s forecast, “The outlook for existing home sales has been revised slightly upward in 2024 and 2025, but significantly downward in 2026.” .
Recent easing in mortgage rates and a recovery in mortgage demand among homebuyers drove the short-term upward revision. However, Fannie Mae economists said that the long-term outlook for 2026 “has been revised downward due to a reassessment of the sustainability of the lock-in effect. We expect the lock-in effect to continue to suppress home sales for the time being.” said.
The outlook for new home sales next year remains positive, with forecast sales of 755,000 units, representing growth of 8.8 percent.
Fannie Mae economists said, “Faced with rising mortgage rates, home builders are moving their inventory of new homes available for sale or changing their offerings to smaller, more affordable homes. “We continue to demonstrate a willingness to provide incentives such as interest rate buybacks,” he said. Said.
The price premium between new homes and existing homes has fallen from 28% in pre-pandemic years to about 4% this year. This is partly because builders are shifting to smaller homes.
The median square footage of new homes has fallen from a peak of 2,519 square feet in the first quarter of 2015 to 2,158 square feet in the third quarter of 2024, according to Fannie Mae economists.
After this month’s upward revision, existing home sales are expected to increase by 4.8% to 4.251 million units in 2025.
But sales in Sunbelt states like Florida and Texas are likely to exceed the national average due to strong home construction and rising inventory. Inventory levels are also near or above pre-pandemic norms in parts of the Mountain West and Pacific Northwest, Fannie Mae economists said, citing Realtor.com data.
Fannie Mae economists said that while inventories in the Midwest and Northeast remain well behind pre-pandemic levels, they “generally expect inventory levels to continue to rise modestly nationally.” said.
Wages may rise faster than house prices
Source: Fannie Mae Housing Forecast, December 2024.
Home price growth is expected to continue slowing to 3.6% by the fourth quarter of 2025, with Fannie Mae economists predicting that nominal wage growth next year will outpace home price growth for the first time in more than a decade. I predict that.
“Below that, some markets may record very small negative (price) declines,” Palim told Inman. “There is considerable regional variation in housing market trends, with the relative importance of new homes increasing in different markets.”
Fannie Mae economists only update their home price growth forecasts in January, April, July, and October, but the December forecast includes a forecast for 2026 that was not published in October. It was.
Based on these data, Fannie Mae economists expect home price growth to continue to decline every quarter in 2026, falling to 1.7% by the fourth quarter.
“Given how unaffordable the housing market is, affordability will continue to be an issue no matter how many positive developments there are,” Palim said.
Mortgage interest rates are expected to ease
Source: Fannie Mae Housing Forecast, December 2024.
Fannie Mae’s mortgage rate outlook is largely unchanged from November, with rates expected to fall to the low 6% range next year but still average 6% in the second half of 2026.
“The persistence of inflation and the apparent stabilization of job market growth have lowered market expectations for future rate cuts,” Fannie Mae economists said. “Unless economic growth begins to slow significantly, we expect mortgage rates to remain elevated relative to pre-pandemic levels, declining only slightly to around 6% by the end of 2025.”
Housing prices support mortgage loan volume
Source: Fannie Mae Housing Forecast, December 2024.
As home prices continue to rise, growth in mortgage purchases is expected to outpace sales, reaching $1.4 trillion in 2025, an increase of 12%.
Fannie Mae economists lowered their 2026 purchase mortgage origination forecast by $54 billion from November to $1.6 trillion because of a more conservative sales outlook.
Refinancing amounts are expected to be $360 billion in 2024, $529 billion in 2025 and $724 billion in 2026, an upward revision of $30 billion from the November forecast.
Housing starts have yet to bottom out
Source: Fannie Mae Housing Forecast, December 2024.
Fannie Mae economists lowered their short-term forecast for new home construction after single-family housing starts fell 6.9% in October, and sales forecasts for 2026 became more conservative starting in November. urged a downward revision.
The latest forecast predicts that single-family housing starts will bottom out next year at 995,000 units, before rebounding 2% to 1,012,000 units in 2026.
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