Fannie Mae Economic and Strategic Research Group Lowers Expectations for 2024 Home Sales and GDP

On Thursday, the Fannie Mae Economic and Strategic Research (ESR) Group released its June commentary. Affordability constraints continue to limit the number of buyers willing and able to make home purchases, even as listing of for-sale homes are on the rise, the ESR Group said.

As a result, the ESR Group downgraded its total home sales forecast to 4.82 million in 2024, representing a modest 1.3% annual gain compared to the previously projected 2.8%.

Home sales have remained weaker than expected despite the recent rise in listings, which may indicate that many homeowners are no longer willing to delay moving due to the so-called “lock-in effect”—perhaps in part due to a general upward recalibration in mortgage rate expectations by consumers following the historically low mortgage rates of the pandemic. While the number of homes available for sale remains tight by historical standards, the months’ supply of inventory is gradually increasing, a dynamic the ESR Group sees as consistent with a deceleration in home-price growth.

The ESR Group also downgraded its 2024 real gross domestic product (GDP) growth outlook to 1.6% on a Q4/Q4 basis due to downward revisions to 2024Q1 GDP data, as well as recent data showing slowing income and spending growth. While recent inflation reports have been encouraging, the ESR Group expects the Federal Reserve will likely need to see several consecutive cool reports to gain confidence that inflation is returning sustainably to its 2% target. Given ongoing resilience in nonfarm payroll growth and volatility in inflation readings, the ESR Group now believes the Fed will cut rates only once this year, in December, as opposed to the previously projected two rate cuts.

In remarks accompanying the June commentary, Fannie Mae Senior Vice President and Chief Economist Doug Duncan said:

“The economy appears to be slowing, and recent readings offer hope that inflation is cooling after progress on that front stalled in the first quarter—a trend that will likely need to be sustained for the Fed to feel comfortable cutting rates. Additionally, the labor market is showing signs of a gradual slowdown, with the unemployment rate creeping up to 4% in the June report. Unfortunately, we’re still not forecasting a ramp-up in housing activity, which will require some combination of continued household income growth, a further slowing of home price appreciation, or a decline in mortgage rates to bring affordability within range of many waiting first-time and move-up homebuyers.”