The recent jump in the 10-year Treasury yield and the resulting rise in mortgage rates are expected to continue to weigh on existing home sales in the near future, likely keeping them at or near their lowest level since 1995, according to the January 2025 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
The ESR Group’s latest forecast predicts mortgage rates closing 2025 and 2026 at 6.5% and 6.3%, respectively, up from the previous forecast of 6.2% and 6.0%. Additionally, the ESR Group expects home price appreciation to decelerate to 3.5 percent in 2025, down from 5.8 percent in 2024. Moreover, home price appreciation is likely to vary considerably by location due in part to regional differences in construction activity and the current supply of homes for sale, according to the ESR group.
While the ESR Group noted that recent economic data points to a strong end for 2024, particularly in the labor market, little change was made to its outlook for economic growth, reaffirming its view for continued-but-slowing real GDP expansion this year. The ESR Group expects 2025 year-total growth will be 2.2 percent, following predicted final 2024 growth of 2.5 percent.
“While we still see signs of resilience in the labor market, the higher mortgage rates that are associated with a growing economy will likely continue the affordability challenges faced by many potential homebuyers,” said Mark Palim, Fannie Mae senior vice president and chief economist. “Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing home sales. A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year — and in many markets, new homes are now priced competitively with existing homes and are far more available. Otherwise, our expectation that home sales activity will remain limited, combined with the elevated rate environment, reaffirms our view that on a national level the 2025 housing market is shaping up to feel a lot like 2024.”
Visit https://www.fanniemae.com/research-and-insights to read the full January 2025 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.
