The Federal Home Loan Mortgage Corporation, better known as Freddie Mac, is predicting that home prices will rise much more modestly in 2024 and 2025 than its experts had previously estimated.
At the beginning of the year, Freddie Mac had forecasted that home prices would have increased by 2.8 percent in 2024 and by 2.0 percent in 2025 at the national level. But in its latest monthly outlook, published on Thursday, the government-sponsored corporation has dramatically changed its prediction.
According to Freddie Mac’s baseline scenario, home prices will increase by a much more modest 0.5 percent this year and in 2025.
“Under our baseline scenario, our housing outlook, particularly for home sales, remains subdued,” the corporation wrote.
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“While housing demand is solid due to a large share of millennial first-time homebuyers looking to buy homes, they are challenged by high mortgage rates and a lack of homes available for sale.”
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Freddie Mac expects these challenges to continue throughout 2024 “mainly in the absence of significant rate cuts, which will keep the rate-lock effect in place and keep total home sales volume below five million in 2024.”
Newsweek previously reported about the impact that millennials are having on the housing market, where they’re unwillingly contributing to keeping prices high.
The generation born between 1981 and 1996 has been waiting years for the right moment to buy only to see the financial crisis of 2007-2008 followed by the COVID-19 pandemic. Many got tired of waiting, and they’re now trying to get on the property ladder en masse, shaking up the entire market.
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This pent-up demand for homes is keeping prices high, especially as the U.S. is still suffering from a historic lack of inventory, and mortgage rates, which are currently averaging 6.8 percent, remain high. The result is that many homebuyers are still being squeezed out of the market—as recent sales data show.
The latest report on existing-home sales by the National Association of Realtors (NAR), published on Thursday, found that existing-home sales descended 4.3 percent in March from February. Compared to a year before, they dropped 3.7 percent. At the same time as sales dropped, prices climbed: between February and March, the median existing home sale price rose 4.8 percent to $393,500.
Matthew Walsh, Moody’s Analytics housing economist, told Newsweek that, as expected by Freddie Mac, home sales are expected to remain low throughout 2024.
“Extremely low housing affordability and a lean existing sales inventory will keep a lid on existing-home sales in the coming months,” he told Newsweek.
“Sales remain well below their average over the past decade, and forward-looking indicators are downbeat. The National Association of Realtors’ pending home sales index had an uneven showing to start the year, and is averaging near its record low. Similarly, mortgage purchase applications have moved sideways over the last few weeks.”
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House price increases cooled in December, the third month in a row of deceleration, on the back of elevated mortgage rates and a slight jump in supply, real estate platform Redfin said on Tuesday.
Prices of homes still went up by 0.4 percent, but this was the smallest increase since June, according to the Redfin’s Home Price Index (RHPI). For the year, home prices were up 6.6 percent. The index calculates sales prices based on homes sold and how those prices shifted over a specific time period, with the latest data covering three months through December 2023.
Redfin pointed out that the prices under review were for purchases that kickstarted in November when mortgage rates hovered around two-decade highs of near 8 percent. The 30-year fixed rate mortgage peaked at about 7.8 percent in November, according to data from the Federal Reserve Bank of St. Louis. Rates have been falling since then and as of January 18, sit at 6.60 percent.
The Redfin platform’s index rose during COVID but fell again after the Federal Reserve began its hiking cycle in early 2022.
“So, the month-to-month growth rate actually became negative for a really short amount of time. But very quickly, because of the lack of inventory, it came back up again,” Chen Zhao, Redfin head of economic research, told Newsweek on Tuesday.
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But the high cost of home loans seen during November depressed prices, Redfin said, while short supply of homes improved slightly. New listings jumped to their highest in more than a year, they said.
Redfin experts suggested that prices are stabilizing from the unpredictable fluctuations seen during the pandemic.
“Homebuyers can take solace in the fact that prices are unlikely to balloon again like they did during the pandemic homebuying frenzy, but they probably won’t fall any time soon, either,” Sheharyar Bokhari, Redfin senior economist, said earlier in a report. “That’s because supply isn’t growing enough to bring prices down, and mortgage rates are no longer falling enough to drive prices up significantly.”
Experts have warned that without a substantial increase in supply of new homes, prices will continue to stay high as buyers compete for limited options available in the market. Analysts have said that there is a dearth of 4 million homes to satisfy demand.
A poll for Newsweek conducted on January 18 revealed that Americans are concerned about expensive prices of homes. Two-thirds told pollsters that the median sale price of nearly $388,000, according to the National Association of Realtors (NAR), was beyond what a middle-class family in America could afford.
Zhao told Newsweek that with rates falling, it was possible that prices might shoot up again. But accompanying a fall of rates has been an improvement of supply, which could lead to price declines.
“If supply continues to tick up, and especially if the growth of supply increases, so it kind of like accelerates a little bit, then it’s possible that we’re able to kind of either maintain this lower level of price growth or price growth might even fall again,” she said. “It really just depends on how much supply continues to increase.”
The Redfin analysis found that Austin, Texas, experienced the sharpest price decline in December from the previous month, followed by Oakland and Sacramento in California, Florida’s Miami and Tennessee’s Nashville.
Chicago, Illinois, saw prices jump by 2.6 percent last month from November, while San Jose, California, Pittsburgh in Pennsylvania, Virginia Beach, Virginia, and Charlotte in North Carolina also saw increases.
This year, activity in the housing sector may improve with falling rates and used home sellers finally deciding to come out of the sidelines and enter the market adding to the amount of homes available for sale to hungry buyers, Zhao said.
“This year, the outlook for rates, probably that rates are gonna come down. They’re not gonna come down a ton, but they will. They will continue to slowly ease, I think, and that might just be enough of a psychological effect for homeowners to say, ‘all right, this is enough, we’re ready to sell,” she told Newsweek.
Update: 1/23/24, 3:00 p.m. ET: This article has been updated with comment Redfin’s Zhao.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.