Homebuyers Get Mixed News From Freddie Mac And The Federal Reserve

Prospective homebuyers got good news when Freddie Mac announced a downward adjustment to anticipated home price increases for 2024 and 2025. The revision comes just over a month after Freddie Mac predicted increases of 2.5% for 2024 and 2.1% for 2025. The mortgage lender predicts that the increase for 2024 and 2025 will be closer to 0.5%. 

Considering that most prospective homebuyers were already struggling with high prices and a lack of inventory, any news about a slowdown in price increases could be welcome. The good news may be tempered by recent indications that the Federal Reserve may be less aggressive than anticipated with its rate cuts in 2024. For homebuyers "less aggressive than anticipated," could mean no rate cut at all in 2024. 

After spending much of 2023 signaling that 2024 might be an optimum time for cutting interest rates, Federal Reserve Chairman Jerome Powell threw a wet blanket on those plans when he said today's interest rates would remain in place for "as long as needed." That announcement came on the heels of stronger-than-anticipated job growth and other economic indicators that inflation is still adversely affecting the American economy. 

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Not long after Powell made that announcement, 10-year Treasury bonds inched up to a 4.6% yield, and 30-year fixed mortgage rates topped 7% for the first time in 2024. Freddie Mac believes that those data points will contribute to a relative cooling of the housing market in 2024 and 2025, which is why they adjusted their price predictions downwards. 

This comes as quite an abrupt turnaround for American homebuyers and real estate developers. As recently as March, Freddie Mac was expecting interest rates to remain steady at 6.5% for the first half of 2024, but that the Federal Reserve would begin cutting rates in the summer. It predicted that inventory would still be limited, and more first-time homebuyers would enter the market. Both of those factors would drive home prices upward. 

In its April statement, Freddie Mac said, “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. 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.” 

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It's safe to say prospective homebuyers welcomed the Federal Reserve's "wait and see" approach to interest rate cuts like ants at a picnic. The same thing probably holds for commercial property owners and developers, who have trillions of dollars in debt maturing between now and 2027. Many of them were likely depending on rate cuts to help stave off foreclosure. 

For homebuyers, it's one step forward and two steps backward. Sure, they will welcome lower-than-expected price increases, but many of them were already priced out of the market. Real estate firm Redfin recently said the cost of owning a home today is higher than it's ever been. 

Redfin CEO Glenn Kelman called the current state of affairs unprecedented and described it as the "worst situation." In a recent interview with Fortune Magazine, Kelman lamented, "Housing is in this recession, and the rest of the economy is booming." That's about the last thing that a prospective homebuyer or mortgage borrower wants to hear right now. 

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