Fannie Mae Economic and Strategic Research Group Releases Its July Commentary

On Tuesday, Fannie Mae’s Economic and Strategic Research (ESR) Group released its July commentary. Home price growth in Q2 was stronger than previously anticipated but will likely moderate soon, closing 2024 and 2025 at annual rates of 6.1% and 3.0%, respectively, the ESR Group said.

The ESR Group points out that despite a more than 30% increase in listings of homes available for sale compared to a year ago, certain indicators of housing activity remain soft, as evidenced in part by fewer existing-home sales in May compared to a year ago. This dynamic of gradually increasing supply and affordability-constrained demand is expected to cause home prices—which were up 3% on a non-seasonally adjusted basis in the second quarter, according to the Fannie Mae Home Price Index—to moderate going forward. Additionally, the ESR Group notes recent regional volatility in listings and home prices, as many large metros in the Sunbelt, for example, now have inventory levels that match or even exceed for-sale inventories in 2019. This contributed to the ESR Group revising downward its starts and new-home sales forecasts; notably, however, it revised upward its existing-home sales forecast due to a modestly lower mortgage rate path.

The ESR Group made only modest revisions to its economic growth outlook, as incoming data have come in largely in line with expectations for slowing growth. Notably, due to two consecutive lower-than-expected prints of the Consumer Price Index (CPI), the ESR Group downwardly revised its inflation forecasts and now expects the CPI to end the year at 2.9% and the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Index, to end the year at 2.5%. Due to the better inflation prints and signs of slowing in the labor market, the ESR Group now expects the Federal Reserve to cut rates in both September and December.

In a statement accompanying the July commentary, Fannie Mae Senior Vice President and Chief Economist Doug Duncan said:

“The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises. The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers. As such, despite more homes being listed for sale, actual home sales have not picked up. We continue to expect home price growth on a national level to decelerate—but remain positive—over the near term, but it should be noted that conditions often vary by region, particularly as it relates to supply. For instance, many Sunbelt metros are currently seeing significant increases in for-sale inventories, in part due to new construction, while supply in much of the Northeast and Midwest remains extremely tight. In aggregate, we expect these varied market conditions to lead to a slight decline in total new-home sales nationally for the full-year 2024, but a slight increase in existing homes sales.”