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Gross sales of current houses are anticipated to stay close to 30-year lows subsequent 12 months as elevated mortgage charges maintain many would-be sellers feeling locked in to their current loans, Fannie Mae economists mentioned of their last forecast of the 12 months.
However “significant regional variation” in listings means many Solar Belt states — and components of the Mountain West and Pacific Northwest — ought to see a brisker tempo of house gross sales than the remainder of the nation, forecasters on the mortgage big mentioned Monday.
Slowing house worth appreciation means Individuals may see their wages go up quicker than house costs subsequent 12 months for the primary time since 2011, “helping to start a gradual improvement in homebuyer affordability conditions,” Fannie Mae economists mentioned in commentary accompanying their newest forecast.
Mark Palim
“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” Fannie Mae Chief Economist Mark Palim mentioned in a press release.
Ups and downs in mortgage charges “may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates,” Palim mentioned.
Dwelling gross sales projected to backside this 12 months
Supply: Fannie Mae Housing Forecast, December 2024.
After a dramatic 16 p.c drop in 2023 as mortgage charges hit post-pandemic highs, house gross sales did not rebound this 12 months.
Whereas new house gross sales at the moment are forecast to submit 4.1 p.c positive aspects this 12 months, to 693,000, gross sales of current houses seem like they’ll slip by about 1 p.c, to 4.058 million.
At 4.752 million, this 12 months’s tempo of gross sales is the bottom in three a long time and is barely anticipated to select up by 5.3 p.c subsequent 12 months and 9.2 p.c in 2026.
“Our outlook for existing home sales was revised upward modestly in 2024 and 2025, but notably downward in 2026,” Fannie Mae forecasters mentioned of adjustments from final month’s forecast.
Latest easing in mortgage charges and a pickup in homebuyer mortgage demand drove the near-term upward revisions. However the longer-term outlook for 2026 “has been revised downward due to a reassessment of the persistence of the lock-in effect, which we expect to continue to suppress home sales for the foreseeable future,” Fannie Mae economists mentioned.
New house gross sales are anticipated to stay a brilliant spot subsequent 12 months, with 755,000 projected gross sales representing 8.8 p.c progress.
“In the face of elevated mortgage rates, homebuilders continue to show a willingness to offer incentives like interest rate buydowns to move their inventories of new homes available for sale and to change the products offered to be smaller, more affordable homes,” Fannie Mae economists mentioned.
The worth premium between new and current houses has come down from 28 p.c within the years earlier than the pandemic to about 4 p.c this 12 months — partly as a result of builders are shifting to smaller houses.
The median sq. footage of latest houses has dropped from a peak of two,519 sq. toes in Q1 2015 to 2,158 sq. toes in Q3 2024, Fannie Mae economists famous.
After this month’s upward revisions, gross sales of current houses are anticipated to extend by 4.8 p.c in 2025, to 4.251 million.
However due to sturdy homebuilding and rising inventories, gross sales in Solar Belt states like Florida and Texas are prone to outpace the nationwide common. Elements of the Mountain West area and Pacific Northwest even have stock ranges close to or above pre-pandemic norms, Fannie Mae economists mentioned, citing knowledge from Realtor.com.
“In general, we expect that inventory levels will continue their gradual rise nationwide,” Fannie Mae economists mentioned, though inventories within the Midwest and Northeast proceed to lag considerably from pre-pandemic ranges.
Wages could rise quicker than house costs
Supply: Fannie Mae Housing Forecast, December 2024.
With house worth appreciation anticipated to proceed to decelerate to three.6 p.c by This fall 2025, Fannie Mae economists mission nominal wage progress will exceed house worth progress subsequent 12 months for the primary time in additional than a decade.
“Underneath that, there may well be some markets that post very small negative (price) declines,” Palim advised Inman. “The dynamics we’re seeing in the housing market are a substantial regional variation because of the relative importance of new homes in different markets.”
Though Fannie Mae economists solely replace their house worth appreciation forecasts in January, April, July and October, the December forecast included projections for 2026 that weren’t made public in October.
They present Fannie Mae economists count on house worth appreciation to proceed to fall each quarter of 2026, dropping to 1.7 p.c by This fall.
“Affordability is going to continue to be an issue, given how unaffordable the housing market is, even if you have some positive movement,” Palim mentioned.
Mortgage charges anticipated to ease
Supply: Fannie Mae Housing Forecast, December 2024.
Fannie Mae’s mortgage price forecast is basically unchanged from November, with charges anticipated to drop into the low sixes subsequent 12 months and nonetheless common 6 p.c throughout the second half of 2026.
“Sticky inflation and an apparent stabilization in job market gains have lowered market expectations for future interest rate cuts,” Fannie Mae economists mentioned. “Unless economic growth starts to slow significantly, we expect mortgage rates to remain elevated relative to pre-pandemic levels, moving only slightly downward to around 6 percent by the end of 2025.”
Dwelling costs assist mortgage quantity
Supply: Fannie Mae Housing Forecast, December 2024.
With house costs nonetheless climbing, 2025 progress in buy mortgage originations is predicted to outstrip gross sales, rising by 12 p.c to $1.4 trillion.
Fannie Mae economists reduce their forecast for 2026 buy mortgage originations by $54 billion from November to $1.6 trillion, because of the extra conservative outlook for gross sales.
Refinancing volumes at the moment are projected at $360 billion in 2024, $529 billion in 2025, and $724 billion in 2026, after $30 billion in upgrades from the November forecast.
Housing begins but to backside
Supply: Fannie Mae Housing Forecast, December 2024.
A 6.9 p.c drop in single-family housing begins in October prompted Fannie Mae economists to downgrade their near-term forecast for brand new house building, and the extra conservative outlook for 2026 gross sales additionally prompted a downward revision from November.
The newest forecast envisions single-family housing begins bottoming out at 995,000 subsequent 12 months, earlier than rebounding by 2 p.c in 2026, to 1.012 million.
E-mail Matt Carter
