Fannie Mae’s Housing Market Forecast
The U.S. housing market, which saw prices increase at a 6.0% rate in 2023, is expected to cool down in the coming years. According to the Q3 2024 Fannie Mae Home Price Expectations Survey (HPES), home prices are projected to grow at a more modest pace of 4.7% in 2024 and then 3.1% in 2025. This forecast reflects a tempered market outlook after several years of strong price appreciation, marking a shift toward more sustainable growth.
The Q3 2024 forecast of 4.7% price growth is an upgrade from the previous quarter’s expectation of 4.3%, signaling that price increases have been stronger than anticipated in recent months. However, the projection for 2025 has been slightly downgraded, from 3.2% to 3.1%, underscoring a gradual cooling trend. The survey, conducted by Fannie Mae in partnership with Pulsenomics, LLC, gathered insights from over 100 housing and mortgage experts, offering a comprehensive view of future market conditions.
Persistent Price Appreciation Amid Supply Constraints
Despite the forecasted moderation, home price appreciation continues to exceed initial expectations. Mark Palim, Vice President and Deputy Chief Economist at Fannie Mae, noted, “Recent measures of home price growth, including our own, have continued to come in stronger than previously expected. Strong home price appreciation has persisted despite purchase affordability remaining stretched for the vast majority of consumers.”
The ongoing price growth can largely be attributed to the mismatch between supply and demand in the housing market. Palim highlighted a “fundamental lack of housing in the United States,” with the panelists estimating a shortfall of approximately 2.8 million homes. This supply gap has kept pressure on prices, making homeownership increasingly difficult for many buyers.
The Role of Zoning and Permitting Reforms
One potential solution to the housing shortage could come in the form of zoning and permitting reforms, which the Q3 2024 HPES explored. Many experts agree that accelerating the construction process and expanding zoning regulations to accommodate multifamily developments could positively impact the housing market over the next five years. However, opinions remain divided on the potential magnitude of these changes.
A significant number of panelists believe that speeding up the construction permitting process would yield the most substantial benefits for housing supply. Expanding zoning for multifamily units and encouraging “missing middle” housing—types that fall between single-family homes and large apartment complexes—were also seen as key reforms. Yet, there is a consensus that widespread enactment of such measures is uncertain, with 63% of panelists expressing doubts about their near-term implementation.
Terry Loebs, founder of Pulsenomics, weighed in on the importance of these reforms, stating, “Even with more accommodative monetary policy, the deep-rooted housing supply and affordability crises will likely persist. Our panelists anticipate a slowdown in price appreciation for the remainder of 2024 and beyond.”
Affordability Challenges Loom Large
While home price growth is expected to slow, affordability challenges remain a pressing concern. Although lower mortgage rates could encourage some homeowners to sell, the limited housing supply continues to drive up prices. As Palim pointed out, “purchase affordability remains stretched for the vast majority of consumers,” making it difficult for many prospective buyers to enter the market.
Experts believe that further policy reforms, such as increasing housing density in transit-oriented areas and streamlining the construction approval process, could help ease supply constraints. However, the timing and scope of these reforms remain uncertain, leaving questions about when or if they will have a meaningful impact on the housing market.
Looking Forward
As the housing market heads into the final quarter of 2024 and then into 2025, slower home price growth is expected, but the core issues of affordability and supply shortages will likely persist. Policymakers and industry leaders must continue to monitor these trends and advocate for targeted reforms that address the structural challenges in the market. Without significant changes, the balance between supply and demand may remain a critical issue for years to come.
(Source: fanniemae.com)
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