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Housing experts revise their mortgage rate forecasts for the rest of 2024

At the start of the year, housing experts and buyers expected better buying conditions: interest rates were about to fall, a change expected to free up inventory and curb surging house prices. real estate.

This perspective has largely changed.

Halfway through 2024, the long-awaited interest rate cuts have yet to occur, house prices continue to grow, and affordability remains a challenge.

“We all expected that at this point in the year we would see stronger home sales activity and that interest rates (would) be falling,” said Jessica Lautz, deputy chief economist. at the National Association of Realtors (NAR), at Yahoo Finance. “(Rates) have moved back into the 7% range, which is dampening home sales activity and changing who can buy a home.”

Learn more: Mortgage rates exceed 7%: is it a good time to buy a house?

Given the uncertainty, experts are widely revising their rate and price forecasts for the remainder of 2024.

Experts are revising their forecasts for mortgage rates and home prices for the rest of the year.Experts are revising their forecasts for mortgage rates and home prices for the rest of the year.

Experts are revising their forecasts for mortgage rates and home prices for the rest of the year. (Juan Silva via Getty Images)

Persistent inflationary pressures have prompted the Federal Reserve to maintain its tight monetary policy until new data shows consistent signs of price easing.

This likely means two things for the housing market: Mortgage rates will stay high for longer and will remain relatively high even if and when the Fed cuts its benchmark interest rate — a move that may influence the mortgage market.

“I don’t see a significant drop in mortgage rates this year,” Orphe Divounguy, senior economist at Zillow, told Yahoo Finance. “Mortgage rates are difficult to predict, but I would be surprised if we ended the year with rates below 6%.”

Many housing experts and financial institutions have revised their rate forecasts upwards. Fannie Mae increased its year-end forecast to 6.4%, up from 5.9% earlier in the year. The NAR changed its forecast from 6.3% to 6.5%. Wells Fargo’s May economic summary adjusted its monthly rate outlook to 6.50% from 6.05% in January.

Year-End Mortgage Rate ForecastYear-End Mortgage Rate Forecast

Year-End Mortgage Rate Forecast (Fannie Mae, National Association of Realtors, Wells Fargo)

Lautz attributed the change in expectations to persistent housing inflation, which accounts for about a third of the Consumer Price Index (CPI) – a metric used by the Fed to measure inflation. Rent and landlord equivalent rent (REL), measuring 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 deposit, and they can’t afford to save for a deposit because the rent is high,” said Lautz, adding that it feels like “feedback.” loop – a loop where inflationary pressure keeps rates high, which increases real estate costs, which in turn squeezes renters.

According to CoreLogic, the average single-family rent increased 3.4% annually to $2,100 in February, the largest annual increase in the past 10 months.

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

Housing experts say house prices will continue to rise until the end of 2024.

Fannie Mae projects price appreciation of nearly 5% through the end of 2024. NAR projects the year-end median price of existing homes will reach $393,000, up from $387,000 in 2023.

“One thing that looks pretty solid is that housing prices are going to continue to rise, and the reason is we don’t have housing inventory,” Lautz said.

Doug Duncan, Fannie Mae’s chief economist, agrees. Even with high mortgage rates, the shortage of inventory “is causing the pricing problem,” he said.

Total housing inventory increased about 5% to 1.11 million at the end of March, according to NAR data. For comparison, the average inventory between 1982 and 2024 was 2.23 million units. Homes for sale listings in March represented only 3.2 months of supply. A balanced real estate market has approximately 6 months of supply.

Housing data shows homebuyers are experiencing a pricing crisis: nearly 30% of homes sold above list 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 … housing 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 a Certified Investment Tax Accountant (CPA).

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