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Homebuying conditions are finally starting to improve, with prices leveling off and supply outpacing demand in key markets, according to Fannie Mae.
The government-sponsored mortgage giant pointed to positive trends in housing, even as affordability conditions remain poor for now.
Inventory — which has been historically low for the past few years — is finally on the rise, with available listings up 30% from levels last year, the firm estimated. The Sun Belt region, in particular, is seeing a big rise in homes for sale, with supply in some areas now at higher levels than before the pandemic, Fannie Mae said.
That should relieve some upward pressure on home prices, which have been pushed higher over the past few years demand outpaced supply. Prices are expected to grow by 6.1% by the end of this year and 3% in 2025, Fannie estimated, eventually slipping below the 4.4% yearly pace recorded in 2023.
Existing home sales, meanwhile, should keep rising, thanks to mortgage rates trending "modestly lower" by the end of 2024. Mortgage rates are influenced by real interest rates in the economy, and the Fed looks poised to cut interest rates twice this year, the group said.
"The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises," Doug Duncan, Fannie Mae's chief economist, said in a recent note.
Buyers have been waiting for better affordability conditions for the past year as multi-decade highs in the 30-year mortgage rate slowed housing activity to a near-halt in 2023.
Rates have come down slightly, but remain elevated. The 30-year fixed mortgage rate clocked in at 6.77% last week, according to the latest Freddie Mac estimate.
"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," Duncan added.
Other real estate forecasters are anticipating a more dramatic affordability reset as prices in some markets look poised to drop. Demand looks particularly weak in the South as people move out of pandemic boom towns, which could eventually lead prices to drop as much as 15% over the next year, one real estate expert previously told Business Insider.
