According to Freddie Mac’s latest outlook, projections for U.S. home prices suddenly look much different than they did just a month ago.
The mortgage giant announced Thursday that price increases will remain at 0.5% in 2024 and 2025. This is a significant downward revision from the forecast in March, which predicted house prices would rise 2.5% in 2024 and 2.1% in 2025. In particular, the outlook for 2024 has worsened compared to the beginning of the year, when prices were expected to rise by 2.8%.
Indeed, less aggressive home price growth sounds like good news for prospective buyers. However, when you combine still-limited inventories with a long period of rising interest rates, the overall picture is not much of an improvement.
“Demand for housing is strong with a large portion of first-time homebuyers, millennials, looking to buy a home, but they face high mortgage rates and a lack of available homes for sale,” Freddie Mac said in an April statement. ” “We expect these challenges to continue into 2024, primarily in the absence of significant rate cuts, which would maintain interest rate lock-in effects and keep total home sales below 5 million in 2024. .”
Economic conditions have stabilized, but the key differences over the past month have been in the outlook for interest rates and when the Fed will start easing.
Hopes that a Fed rate cut is imminent have gradually faded following a series of better-than-expected inflation data at the start of the year. This caused U.S. Treasury yields and mortgage rates to rise steadily.
And on Tuesday, Fed Chairman Jerome Powell confirmed Wall Street’s concerns when he said interest rates would remain where they are “as long as necessary” because of a strong labor market and necessary progress on inflation.
Government bond yields rose further, with the 10-year rate exceeding 4.6%, and other borrowing costs rose as well. 30-year fixed-rate mortgages rose above 7% for the first time this year, according to Thursday’s figures from Freddie Mac.
These developments last month appear to have been a major factor in Freddie Mac’s drastic downgrade of its housing market outlook.
In March, we predicted that the Fed’s interest rate cuts could begin as early as the summer, and that mortgage rates could remain above 6.5% through the second quarter, before falling later this year. . Although inventory remains tight, “first-time homebuyers continue to flood the housing market” and home prices are rising.
These forecasts have been removed from the April outlook. Instead, Freddie Mac declined to provide more specific guidance on interest rates, saying the Fed is currently in “wait-and-see” mode before starting to ease. “Therefore, we expect mortgage rates to remain high for an extended period of time.”
The new forecast comes as soaring home prices and mortgage rates are pushing many Americans away from ownership. Redfin recently said the cost of home ownership is officially at an all-time high.
Redfin CEO Glenn Kelman said prospective buyers who held off on buying last year are tired of waiting, as millennials who delayed starting a family can only wait so long. He said he had never seen anything like this and called it “the worst situation” for the housing market.
“While the housing industry is in this recession, the rest of the economy is booming,” Kelman said.
