Existing Home Sales on Pace to Hit Nearly 30-Year Low, Despite Recently Lower Rates

WASHINGTON, DC – Despite a significant decline in mortgage rates and improved supply in some parts of the country, existing home sales are not expected to pick up meaningfully through the remainder of 2024, with the annual pace now forecast to be the slowest since 1995, according to the September 2024 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. Recent data, including softness in pending home sales and purchase mortgage applications, continue to suggest limited home-purchase demand at current affordability levels. According to the ESR Group, existing home sales have not grown despite a nearly 20-percent increase in homes available for sale from year-ago levels, in part due to geographic variations. Much of the increase in for-sale inventories has occurred in the Sun Belt and Mountain West regions, areas that also experienced some of the strongest home price growth in recent years, as well as robust new home construction. This creates both a large relative affordability shock in these states and greater competition for existing home sales stemming from the new construction. The ESR Group believes some combination of easing mortgage rates and soft home price growth relative to income growth in these regions will be needed before existing home sales begin to meaningfully rise.

The ESR Group's economic growth outlook was mostly unchanged this month, as incoming data has been largely consistent with expectations. The ESR Group notes that the economy is likely shifting into a slower growth path, and as inflation moves closer to the 2-percent target, the Federal Reserve is poised to move monetary policy toward a more neutral stance. Still, the ESR Group believes the lagged effect of monetary policy is likely to keep real gross domestic product growth subdued in coming quarters before returning to the long-term trend by the end of 2025.

"Increasingly, regional variations in housing supply are creating divergent affordability conditions and experiences for consumers on both sides of the home sales transaction; however, taken as a whole, home sales activity, particularly on the existing side, remains near what we consider to be the floor of basic demographic and household mortgage demand," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "Supply has risen significantly in many Sun Belt states, where such factors as ease of new home development and increasing insurance costs are having an impact, but at the national level the supply shortage still very much applies. Although mortgage rates have fallen considerably in recent weeks, we've not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment. We think it's likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate. Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability. Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995."

Visit the Economic & Strategic Research site at fanniemae.com to read the full September 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 & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic & 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.

About the ESR Group
Fannie Mae’s Economic and Strategic Research Group, led by Chief Economist Doug Duncan, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets. The ESR Group was awarded the prestigious 2022 Lawrence R. Klein Award for Blue Chip Forecast Accuracy based on the accuracy of its macroeconomic forecasts published over the 4-year period from 2018 to 2021.