Inventory, Optimism on the Rise Even as Affordability Questions Remain
Written By: Joel Palmer, Op-Ed Writer
Mortgage and housing experts continue to raise their optimism about the industry in 2024.
That includes Fannie Mae. The company’s Economic and Strategic Research Group said last week that existing home sales and single-family housing starts are expected to grow modestly in 2024 amid lower mortgage rates and strengthening homebuyer sentiment.
Fannie has made upward revisions in previous forecasts for home sales and home starts.
It cites two trends. One is that housing inventory looks to increase this year, creating more opportunities for buyers. Second, consumers are expressing more optimism and interest in home buying.
“Consumers appear to be increasingly absorbing the idea that interest rates are in the process of easing,” Fannie’s ESR Group wrote in its latest commentary. “While both constrained affordability and the ‘lock-in’ effect, which is limiting the selling incentive of current homeowners, will likely remain prevalent for the foreseeable future, more potential homebuyers and home-sellers may be preparing to move. The level of inventory remains low, according to Realtor.com, but recent listings are up 9.5 percent from a year prior as of the week of February 10.”
The National Association of Realtors (NAR) reported in the same week that total existing home sales rose 3.1 percent from December to January.
"While home sales remain sizably lower than a couple of years ago, January's monthly gain is the start of more supply and demand," said NAR Chief Economist Lawrence Yun. "Listings were modestly higher, and home buyers are taking advantage of lower mortgage rates compared to late last year.”
NAR also reported that total housing inventory at the end of January was up 2 percent from December and 3.1 percent higher on a year-over-year basis.
And despite ongoing affordability concerns, roughly 40 percent of respondents to a realtor.com survey said they could afford to buy if mortgage rates drop below 6 percent.
That may not happen in the next weeks or months, as the average 30-year fixed rate recently reached 6.9 percent. However, Fannie Mae is still forecasting the 30-year rate to average 6.2 percent in 2024. That means if that forecast holds, there will be periods throughout the year where the 30-year rate falls below 6 percent.
Freddie’s latest forecast said declining rates would breathe life into the single-family marketing, in both purchase mortgages and refinances.
“The demand for housing will remain high based on a large share of Millennial first-time homebuyers looking to purchase homes,” Freddie’s economists wrote. “However, higher monthly costs and down payments required from the increasing property values are pricing many prospective first-time homebuyers out of the market, despite their desire to own a home.”
While Freddie expects increases in both purchase and refinance volumes this year and into 2025, its economists don’t expect those volumes to reach recent high levels. Purchase volume growth will be hindered by the lack of inventory.
Fannie expects 2024 single-family purchase mortgage origination volumes to be $1.5 trillion and 2025 volumes to be $1.6 trillion. These represent downgrades of $30 billion and $40 billion, respectively, compared to the previous month’s forecast. The downward revision to the 2024 forecast was driven by weaker-than-expected incoming data on the average price of new home sales. This outweighed upward revisions to Fannie’s expectation for 2024 existing home sales.
For refinances, Fannie revised downward our overall volume expectation by $30 billion in 2024 to $459 billion.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
