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Fannie Mae has lifted its forecast for mortgage rates from just a month ago, saying rates will stay higher for longer than they previously thought – and fewer homes will be sold than they expected in 2024.
The government-backed organization said in its February forecast that it expects the average rate for a 30-year fixed mortgage to drop below 6% by the end of the year to 5.9% in the fourth quarter.
Now, Fannie Mae expects rates to be a half-percent higher (6.4%) by the end of this year, and remain above 6% for another two years, gradually declining to a flat 6% by fourth-quarter 2025.
A “For Sale” outside a house in Hercules, California, on May 31, 2022. (David Paul Morris/Bloomberg via / Getty Images)
Freddie Mac’s latest data shows the average rate for a 30-year fixed mortgage is currently around 6.74%. After peaking at 7.79% in late October, rates steadily declined until mid-January when they reversed course and began marching back up.
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Rates have fallen slightly for the past few weeks, but economists do not expect them to drop significantly any time soon. Sam Khater, Freddie Mac’s chief economist, said last week, “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”
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“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in a statement announcing the increase in mortgage rate expectations.
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“Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast, as markets continue to evolve their expectations of future monetary policy,” Duncan explained.
A housing development in Trappe, Maryland, on Oct. 28, 2022. (Jim Watson/AFP via / Getty Images)
“Still,” he added, “while we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 – even if mortgage rates remain elevated.”
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Fannie Mae said the change to its mortgage rate outlook was the principal driver of a downward revision to its total home sales forecast. The organization now expects 4.91 million home sales in 2024, down from 5 million, and 5.4 million sales in 2025, down from 5.54 million.
