Home price growth in the second quarter was stronger than previously anticipated but will likely moderate soon, closing 2024 and 2025 at annual rates of 6.1% and 3.0%, respectively, according to the July 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
Despite active listings of homes for sale increasing more than 30% compared to a year ago, fewer sales of existing homes occurred in May compared to a year ago, indicating a softening market.
A similar sentiment was highlighted by Redfin’s latest Home Price Index (RHPI), which stated that although home prices continue to reach record highs, the rate of home price appreciation is starting to moderate. The RHPI reported U.S. home prices rose 0.2% in June, the smallest month-over-month increase since January 2023 on a seasonally adjusted basis.
Prices in June were still up 6.9% from a year earlier, marking the lowest annual growth since January. Redfin reported that the rate of price growth has been slowing each month since February 2024.
“Even though price growth has been slowing down, falling mortgage rates and lower-than-usual inventory levels are likely to keep prices ticking up in the coming months,” said Redfin Senior Economist Sheharyar Bokhari. “The Redfin Home Price Index has only fallen twice in its 12-year history — in August and September 2022, when mortgage rates and inventory spiked significantly. Those things are unlikely to happen this year.”
The ESR Group noted that the dynamic of gradually increasing supply and affordability-constrained demand is expected to cause home prices, which were up 3% on a non-seasonally adjusted basis in the second quarter, to moderate going forward.
Both Redfin and Fannie Mae’s data, albeit for two separate months, were congruent with other home price monitoring data like First American Data & Analytics’ June 2024 Home Price Index (HPI) report. All three reports indicated home price growth starting to moderate.
The ESR Group noted recent regional volatility in listings and home prices, as housing markets around the U.S. now have inventory levels that match or even exceed for-sale inventories in 2019. This contributed to the ESR Group revising downward its starts and new home sales forecasts; however, it revised upward its existing home sales forecast due to a modestly lower mortgage rate path.
Due to two consecutive lower-than-expected prints of the Consumer Price Index (CPI), the ESR Group downwardly revised its inflation forecasts and now expects the CPI to end the year at 2.9%, and the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Index, to end the year at 2.5%.
The Group now expects the Federal Reserve to cut rates in both September and December.
"The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises," said Fannie Mae Senior Vice President and Chief Economist, Doug Duncan. "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. As such, despite more homes being listed for sale, actual home sales have not picked up.”
