According to Freddie Mac’s latest outlook, US housing price forecasts suddenly look very different than they did a month ago.
The price will only increase by 0.5% in 2024 and 2025. the mortgage giant said Thursday. That is a big decrease Forecast in Marchwhen it predicted house prices would rise 2.5% in 2024 and a pair of.1% in 2025. The forecast for 2024 has suffered, particularly in comparison with the start of the yr Prices rose 2.8%.
Certainly a less aggressive trend in house price increases seems like excellent news for potential buyers. However, combined with the still limited inventory and longer-term higher tariffs, the general picture doesn’t end in a big improvement.
“While housing demand is solid with a large share of Millennial first-time home buyers looking to purchase a home, they face high mortgage rates and a shortage of homes for sale,” Freddie Mac said in its April statement. “We expect these challenges to continue in 2024, especially if there are no significant interest rate cuts, thereby maintaining the interest rate lock-in effect and keeping total home sales volume below five million in 2024.”
Given the robust economy, the most important difference during the last month has been the rate of interest outlook and when the Federal Reserve might begin easing.
A series of unexpectedly high inflation figures in the beginning of the yr step by step dashed hopes that the Fed would cut rates of interest soon. This led to a gradual rise in US bond yields and mortgage rates.
Then on Tuesday, Fed Chairman Jerome Powell confirmed Wall Street’s fears by saying rates of interest would remain at their current levels “for as long as necessary” resulting from the robust labor market and continued progress on inflation.
Treasury yields rose even higher, with the 10-year Treasury rate topping 4.6%, driving up other borrowing costs as well. The 30-year fixed-rate mortgage rose above 7% for the primary time this yr, in keeping with Freddie Mac’s reading on Thursday.
These developments last month gave the impression to be the predominant catalyst for Freddie Mac’s significant downgrade of its housing market outlook.
In March, it was forecast that the Fed’s rate cuts could begin as early because the summer, with mortgage rates staying above 6.5% within the second quarter after which falling within the second half of the yr. While inventory would still be tight, more first-time buyers are “flooding the property market” and driving up property prices.
These forecasts have been faraway from the April outlook. Instead, Freddie Mac said the Fed is now in “wait and see” mode before starting easing and stopped in need of offering more specific guidance on rates of interest. “We therefore expect mortgage interest rates to remain high for longer.”
The latest forecast comes as high home prices and mortgage rates of interest have discouraged many Americans from purchasing property. The cost of owning a house is officially the very best on record, Redfin said recently.
Redfin CEO Glenn Kelman said potential buyers who held out last yr are uninterested in waiting because millennials who’ve postpone starting a family can only wait so long. He said he had never seen anything prefer it and called it the “worst situation” for the true estate market.
“Housing is in this recession and the rest of the economy is booming,” Kelman said.
