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Lack of Fed Rate Cuts Affecting…

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The forecast for homes prices has changed based on the continuing delay in Federal Reserve’s cut in rates.

Freddie Mac’s Updated Prediction

The most recent prediction from Freddie Mac suggests that expectations for U.S. home prices suddenly appear very different from those made just a month ago.

The mortgage giant stated on April 18, 2024, that prices would only rise by 0.5% in 2024 and 2025. That represents a significant decline from its March forecast, which said that housing prices will increase by 2.5% in 2024 and 2.1% in 2025. Compared to the beginning of the year, when prices were predicted to rise by 2.8%, the outlook for 2024 has deteriorated significantly.

Challenges for Potential Purchasers

For potential purchasers, a less aggressive trajectory for home price growth does indeed sound desirable. The overall situation is not much better, though, when you factor in higher-for-longer pricing and still-limited inventories.

“While housing demand is solid due to a large share of Millennial first-time homebuyers looking to buy homes, they are challenged by high mortgage rates and a lack of homes available for sale,” Freddie Mac stated in its April statement. “We expect these challenges to persist in 2024 mainly in the absence of significant rate cuts, which will keep the rate-lock effect in place and keep total home sales volume below five million in 2024.”

The prognosis for interest rates and the potential timing of the Federal Reserve’s easing program have changed over the past month, despite the economic picture remaining stable.

The expectation that the Fed would drop rates soon was steadily undermined by a series of hotter-than-expected inflation readings at the beginning of the year. Mortgage rates and U.S. bond yields increased steadily as a result.

Impact on Mortgage Rates

Then, on Tuesday, Fed Chair Jerome Powell assuaged Wall Street’s concerns by stating that rates of inflation would remain where they are “for as long as needed” because of the strong job market and the remaining work that needs to be made.

With the 10-year rate hitting 4.6%, Treasury rates increased even further, driving up the cost of borrowing for other instruments. This year, the 30-year fixed-rate mortgage jumped above 7%, per Freddie Mac’s report on April 18, 2024.

These events during the last month seemed to be the primary cause of Freddie Mac’s significant drop in its forecast for the housing market.

It was projected in March that the Fed would start cutting rates as early as the summer, with mortgage rates remaining over 6.5% through the second quarter and then gradually declining in the second half of the year. Home prices would rise as “more first-time homebuyers continue to flood the housing market,” even though there would still be a shortage of inventory.

The Housing Market Outlook

The outlook for April has been updated to exclude such forecasts. Freddie Mac declined to provide more detailed rate advice, instead stating that the Fed is now in a “wait and see” position before beginning to ease. “We therefore expect mortgage rates to remain elevated for longer.”

With high mortgage rates and property prices discouraging many Americans from becoming homeowners, a new projection has been released. According to Redfin, the official cost of home ownership is at an all-time high.

Millennials who put off starting a family can only wait so long, according to Redfin CEO Glenn Kelman, who stated that prospective buyers who held out last year are fed up with waiting. Referring to it as the “worst situation” for the property market, he claimed to have never seen anything like it.

According to Kelman, “the rest of the economy is booming, but housing is in a recession.”

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