Freddie: Elevated Mortgage Rates Amid Inflation Concerns

Freddie Mac’s latest economic forecast anticipates mortgage rates to stay at 6.5% for the first half of the year due to concerns over inflation. The Federal Reserve’s response to economic growth and inflation expectations suggests that rate cuts are unlikely until at least the summer, maintaining elevated treasury yields and mortgage rates in the near term. Last month’s prediction had rates remaining at 6.5% in the first quarter and trending down to 6% by year-end, but the most recent Primary Mortgage Market Survey shows a slight increase, with the 30-year fixed-rate mortgage (FRM) at 6.87%.

While the Mortgage Bankers Association (MBA) slightly adjusts its 2024 volume forecast to $2.01 trillion, up from its previous estimate, Fannie Mae revises its forecast downward for both 2024 and 2025 due to expectations of 30-year FRM rates remaining above 6% through 2025. Despite Freddie Mac’s expectation of a modest housing market recovery in the latter part of the year following a potential Federal Reserve rate cut, limited supply, and the rate lock effect may restrict home sales and contribute to continued upward pressure on home prices. Despite cautious optimism, inflation and credit quality uncertainties could impact the outlook of mortgage origination.      

Case-Shiller Price Index Records Largest Yearly Jump Since 2022

In January, the S&P CoreLogic Case-Shiller U.S. National Home Price Index reported a 6.0% annual gain, marking the fastest yearly increase since 2022. The 10-City and 20-City Composites recorded substantial annual gains, with the former showing a 7.4% increase and the latter demonstrating a 6.6% jump. Across all cities tracked in the indices, every area experienced annual price hikes, with Southern California leading the charge. San Diego saw the largest year-to-year increase at 11.2%, followed by Los Angeles at 8.6%.

However, despite strong annual gains, the national index witnessed a decline for the third consecutive month on a month-over-month basis, reflecting ongoing challenges in price growth due to increased inventory and elevated borrowing costs. While some markets struggled, Southern California and Washington, D.C. managed to defy the trend of declining prices, showcasing positive returns at the beginning of the year amidst rising interest rates.

Insights into U.S. Home Prices – April 2024

In February 2024, home prices in the United States saw a 5.5% year-over-year increase compared to February 2023, with a month-over-month growth of 0.7%. CoreLogic emphasizes the importance of incorporating newly released public data for accuracy, leading to standard revisions in their reports. Looking ahead, the CoreLogic HPI Forecast predicts a further 0.4% increase in home prices from February to March 2024 and a 3.1% year-over-year rise from February 2024 to February 2025.

Dr. Selma Hepp, Chief Economist for CoreLogic, notes that the U.S. experienced a pivot in home price growth in February, signaling a slowdown in annual gains after the residual impact of comparing gains with weak 2022 home prices faded. Despite ongoing mortgage rate volatility, there was a notable 0.7% increase in home prices from January to February 2024, nearly double the monthly increase seen before the pandemic. Hepp suggests that the increased inventory coming to the market may provide more options for buyers, potentially reducing bidding wars and helping to moderate price growth. However, despite affordability challenges, demand appears to favor expensive coastal markets with limited property availability.