Existing Home Sales in 2024 Could See Historic Low

According to its September 2024 commentary, Fannie Mae’s ESR Group has revised downwards its forecast for existing home sales, predicting an annual pace at the lowest level since 1995. That’s despite the drop in mortgage rates and significant inventory growth. 

The ESR Group credits the lock-in effect and persistent affordability constraints with the sluggish return of buyers to the market. In many local markets, new home supply is also competing with existing homes for buyer attention, especially in Sun Belt and Mountain metros. 

While inventory is up nearly 20% from a year ago, many regions are still seeing sluggish existing home sales. And while the Group expects a combination of lower rates and slower home price growth (relative to income) to eventually boost sales, current monetary policy is expected to keep the overall economy in a slow growth phase until 2025. 

Increasingly, regional variations in housing supply are creating divergent affordability conditions and experiences for consumers on both sides of the home sales transaction; however, taken as a whole, home sales activity, particularly on the existing side, remains near what we consider to be the floor of basic demographic and household mortgage demand. 

Supply has risen significantly in many Sun Belt states, where such factors as ease of new home development and increasing insurance costs are having an impact, but at the national level the supply shortage still very much applies. 

Although mortgage rates have fallen considerably in recent weeks, we’ve not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment. We think it’s likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate. Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability. 

Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995.

Doug Duncan

Fannie Mae Senior Vice President and Chief Economist

2024 Existing Home Sales Forecasted at Nearly 30-Year Low

Despite the significant drop in mortgage rates, the combination of the lock-in effect and persistent affordability challenges are still keeping many buyers on the sidelines—despite the nearly 20% annual increase in for-sale listings—partly due to geographic variations. 

Fannie Mae’s ESR Group is now forecasting 2024 total home sales to reach 4.7 million—down from its earlier forecast (4.8 million) and a 0.3% decline from the 2023 total, with the annual sales pace hitting its lowest level since 1995. 

In 2025, sales are expected to pick up by 9.8% to a pace of 5.1 million units, with the majority of those sales coming in the second half of the year if mortgage rates fall significantly and end 2025 at 5.7%, as the Group currently projects. 

Another factor contributing to sluggish sales could be the upcoming presidential election. Agents across the U.S. have had conversations with consumers who expressed an inclination to wait and see whether and how the outcome of the election could impact their ability to afford a home purchase or to get the price they want for their home. 

That uncertainty is something you can address in your conversations with consumers, pointing to data like this as well as the precedent set by the past several elections. 

Recent data on pending home sales and purchase mortgage applications continue to suggest limited homebuyer demand at current affordability levels. 

Active Inventory and New Construction

Most of the increase in homes for sale is in Sun Belt states and a few Mountain West states, some of which now have for-sale inventories at or even above pre-pandemic levels. But these regions have two trends working against a corresponding increase in existing home sales:

1. Markets in these regions have also seen some of the strongest growth in home prices, causing a relative price shock for potential buyers. 
2. Sun Belt and some Mountain states have also seen robust growth in new home construction, competing with existing homes for buyer attention. 

Based on available data, the ESR Group believes these markets will need a combination of lower mortgage rates and softer growth in home prices relative to income growth before they see a meaningful increase in existing home sales. 

Meanwhile, for-sale inventory in most of the Northeast and Midwest states remains near cycle lows. 

Purchase Mortgage Applications

Regarding total single-family mortgage originations, the ESR Group modestly revised its forecast for 2024 downward to $1.68 trillion (from $1.70 trillion), while revising upward its outlook for 2025 to $2.16 trillion (from $2.15 trillion), primarily due to an increase in refinance volumes. 

Slower Economic Growth

The ESR Group’s outlook on economic growth was mostly unchanged in September’s forecast since incoming data has been, for the most part, consistent with expectations. The overall economy, as noted in the Group’s commentary, is likely shifting into a slower pace of growth, with the lagged effect of the Fed’s monetary policy expected to continue subduing growth in the real gross domestic product over the coming quarters. Growth should return to the long-term trend by the end of 2025. 

The ESR Group expects Real GDP growth 2024 at 2% for 2024 on a Q4/Q4 basis (up from 1.9%) and 1.8% (unchanged) for 2025. 

The unemployment rate is forecasted to gradually increase to 4.6% by the end of 2025.

Read the full commentary for more information, including charts and methodology.