Housing experts revise mortgage rate forecasts for remainder of 2024

At the beginning of the year, housing experts and homebuyers looked forward to better buying conditions — interest rates were poised to drop, a shift expected to free up inventory and cool surging home prices.

That outlook has mostly changed.

Nearly halfway through 2024, the highly anticipated interest rate cuts have yet to happen, 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] down,” Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR), told Yahoo Finance. “[Rates] moved back up into the 7% range, and that does put a damper on home sales activity, and it changes who can purchase a home.”

Read more: Mortgage rates top 7% — is this a good time to buy a house?

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

Higher mortgage rates for longer

Persistent inflation pressure has prompted the Federal Reserve to maintain its strict monetary policy until further data shows consistent signs of prices easing.

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

“I don’t see mortgage rates declining significantly this year,” Orphe Divounguy, Zillow’s senior economist, told Yahoo Finance. “Mortgage rates are famously difficult to predict, but I’d be surprised if we ended the year with rates below 6%.”

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

Lautz attributed the changing expectations to persistent housing inflation, which makes up around a third of the Consumer Price Index (CPI) — an indicator used by the Fed to measure inflation. Rent and homeowners’ equivalent rent (OER), measuring housing costs, were two of the three largest inflation contributors in April.

“There’s more people in the rental market because they can’t afford to save for a down payment, and they can’t afford to save for a down payment because rent is high,” Lautz said, adding that this resembles a “feedback” loop — one where inflationary pressure keeps rates high, which elevates home costs, which in turn squeezes renters.

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According to CoreLogic, the average single-family rent increased 3.4% yearly to $2,100 in February, the largest yearly gain over the last 10 months.

The market is now pricing in roughly a 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.

Growing home prices

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

Fannie Mae forecasts a nearly 5% price appreciation by the end of 2024. NAR predicts the year-end median price on existing homes will hit $393,000, up from $387,000 in 2023.

“One thing that seems to be pretty solid is that home prices are going to continue to go up, and the reason is that we don’t have housing inventory,” Lautz said.

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

Total housing inventory increased about 5% to 1.11 million at the end of March, according to data from the NAR. By comparison, the average inventory between 1982 and 2024 was 2.23 million units. March’s home-for-sale listings equaled only 3.2 months’ supply. A balanced housing market has around 6 months of supply.

Housing data shows that homebuyers are keenly experiencing a price crunch — nearly 30% of homes sold above the listing price in March. Yearly US national home prices also gained more than 6% in February, according to S&P CoreLogic Case-Shiller Index.

“We’re continuing to see…that home prices are continuing to go up,” Lautz said. “There are still bidding wars and three offers for every home listed last month.”

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

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