Housing market outlook: House price forecast zigzags up again

According to Freddie Mac’s latest forecast released Tuesday, home prices will rise 2.1 percent in 2024 and 0.6 percent in 2025, marking the latest turnaround, especially for this year.

In April, the mortgage giant said house prices would rise just 0.5% in 2024 and 2025, down sharply from its March forecast, when it predicted prices would rise 2.5% in 2024 and 2 .1% in 2025.

Freddie Mac has refrained from providing fresh home price guidance between April and now, opting instead to switch to a quarterly cadence. This proved prescient as the dust had only recently settled from the major market swings and economic data.

A string of higher-than-expected inflation readings in the spring made the prospect of a Fed rate cut look increasingly distant, sending bond yields and mortgage rates higher.

But the situation reversed in the summer, when the latest inflation rate hit a three-year low, making a rate cut next month look more certain. And on Friday, Fed Chairman Jerome Powell basically confirmed that view, saying “the time has come” to cut.

Mortgage rates have fallen sharply in recent weeks and are approaching 6%, the “magic number” that some experts believe will trigger a further weakness in the housing market.

Freddie Mac is seeing a big increase in demand, mainly from first-time homebuyers. But other parts of his outlook are more mixed, similar to his large upward revision to house prices in 2024 versus a more subdued interpretation of 2025.

“We also expect the lower rates to loosen the rate lock effect to some extent, providing some impetus to inventory – although it should be minimal given that most existing landlords have rates locked below 6% “, it is said. “Despite some slack, tight inventory (due to a decade of construction, further exacerbated by the rate lock effect) is still expected to limit home sales.”

The result should be only modest growth in home sales for the rest of the year and 2025, remaining below an annual pace of 6 million.

Still, Freddie Mac remains optimistic overall and does not expect the economy to fall into a recession.

“While potential homebuyers continue to face affordability challenges due to high home prices, homeowners are experiencing significant wealth gains, making them less vulnerable to adverse economic events,” it said.

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