Housing experts are revising mortgage rate forecasts for the remainder of 2024

At the beginning of the year, housing experts and homebuyers looked to improving purchasing conditions as interest rates were poised to fall, a shift expected to free up inventory and cool home price increases.

This outlook has mostly changed.

About halfway through 2024, highly anticipated interest rate cuts have yet to occur, home prices are still growing, and affordability remains a challenge.

“We all expected that at this point in the year, we would see stronger home sales activity and interest rates [would be] “The price has come down,” Jessica Lautz, deputy chief economist for the National Association of Realtors (NAR), told Yahoo Finance.[Rates] Move back into the 7% range, and that puts a damper on home sales activity, and changes who can buy a home.

Read more: Mortgage Rates Hit 7% – Is This a Good Time to Buy a Home?

Given the uncertainty, experts are widely revising their forecasts for rates and prices for the rest of 2024.

Mortgage rates rise for longer

Continued inflationary pressures have prompted the Federal Reserve to maintain tight monetary policy until further data shows consistent signs of declining prices.

This likely means two things for the housing market: Mortgage rates will remain high for longer and will remain relatively high even if and when the Federal Reserve lowers its benchmark interest rate — a move that could impact the mortgage market.

“I don’t expect mortgage rates to decline significantly this year,” Orvi Devongi, chief economist at Zillow, told Yahoo Finance. “Mortgage rates are notoriously difficult to predict, but I would be surprised if we finished the year with rates below 6%.”

Many housing experts and financial institutions have revised their interest rate forecasts upward. Fannie Mae It raised its year-end forecast to 6.4% from 5.9% earlier in the year. NAR has been modified Its expectations are to 6.5% from 6.3%. Wells Fargo May Economic Summary The bank revised its monthly interest rate forecast to 6.50% from 6.05% in January.

Lautz attributed the changing outlook to persistent housing inflation, which makes up about a third of the Consumer Price Index (CPI) — an index the Federal Reserve uses to measure inflation. Rent and homeowners’ equivalent rent (OER), which measures housing costs, were among the top three contributors to inflation in April.

“There are more people in the rental market because they can’t save for a down payment, and they can’t save for a down payment because the rent is high,” Lautz said, adding that it’s like a “feedback.” Loop – a loop where inflationary pressure keeps interest rates high, causing housing costs to rise, which in turn puts pressure on renters.

The story continues

According to CoreLogic, the median single-family rent rose 3.4% annually to $2,100 in February, the largest annual gain in the past 10 months.

The market now expects a roughly 50% chance that the Fed will cut interest rates by 25 basis points for the first time this year in September. According to CME FedWatch.

House prices are increasing

Housing experts say home prices will continue to rise for the rest of 2024.

Fannie Mae expects approx Price increase by 5% By the end of 2024. NAR predicts The median existing home price at the end of the year will be $393,000, up from $387,000 in 2023.

“The only thing that seems very strong is that house prices will continue to rise, and the reason is because we have no housing stock,” Lautz said.

Doug Duncan, chief economist at Fannie Mae, agrees. Even with mortgage rates rising, the lack of inventory “causes a price problem,” he said.

Total housing inventory rose about 5% to 1.11 million at the end of March. According to NAR data. By comparison, inventory between 1982 and 2024 averaged 2.23 million units. Home listings for sale for March amounted to just 3.2 months of supply. A balanced housing market has about 6 months of supply.

Housing data is shown Homebuyers are suffering badly from the price crunch — nearly 30% of homes sold above list price in March. US national home prices also rose on an annual basis by more than 6% in February, According to the S&P CoreLogic Case-Shiller Index.

“We continue to see … home prices continuing to rise,” Lautz said. “There are still bidding wars and three offers for every home listed last month.”

Rebecca Chen is a reporter at Yahoo Finance and previously served as an investment tax certified public accountant (CPA).

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