Existing home sales are now expected to rise only 4 percent next year from a 2024 pace that is on track for a nearly 30-year low, according to the November 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. The downward revision to the existing home sales outlook, which was previously forecast to rise 11 percent in 2025, is the result of significant upward movement in mortgage rates and other long-duration bonds in recent weeks. Whereas previously the ESR Group had expected mortgage rates to dip below 6 percent in early 2025, the revised forecast now shows mortgage rates ending 2025 at 6.3 percent and remaining above 6 percent through 2026. The ESR Group does expect a significant improvement in existing home sales of around 17 percent in its inaugural 2026 forecast, as affordability conditions improve, the lock-in effect weakens, and pent-up demand to move materializes. Furthermore, the ESR Group continues to expect new home sales to improve on already-robust levels in both 2025 and 2026, as homebuilders continue to offer buyers incentives to move existing inventories.

The ESR Group's economic growth outlook is little changed this month, with minor upward revisions to near-term growth in personal consumption. Its 2026 GDP forecast sees the economy continuing to grow near its long-run trend rate of about 2.2 percent. Of note, the ESR Group now expects core inflation, for which further progress has largely stalled in recent months, to remain elevated in the near term. This is offset somewhat by the expectation for lower oil prices due to recent movements in oil markets and a softer global demand outlook, which will likely work to keep topline inflation measures below core inflation through 2025. The ESR Group expects core inflation to return to the Fed's 2 percent target by the second quarter of 2026, but it now expects somewhat less monetary policy easing in 2025 than previously forecasted.

"Long-run interest rates have moved upward over the past couple months following a string of continued strong economic data and disappointing inflation readings," said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. "To the extent that the recent run-up in rates has been driven by market expectations of stronger economic growth, we think this bodes well for the labor market outlook and home purchase demand. However, we expect inventories of homes added to the market, and therefore sales of existing homes, to remain subdued through next year, as the higher mortgage rate environment is likely to strengthen the ongoing lock-in effect. How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon."

Visit the Economic and Strategic Research site at fanniemae.com to read the full November 2024 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic and Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.