Housing market expectations have changed dramatically in the past month

The price will rise by only 0.5% in 2024 and 2025, The mortgage giant said Thursday. This fell sharply from that March forecastwhen it expected house prices to rise 2.5% in 2024 and 2.1% in 2025. The outlook for 2024 has particularly suffered compared to the beginning of the year, when Prices increased by 2.8%.

A less aggressive path to home price gains certainly sounds like good news for potential buyers. But when combined with still-limited inventory and higher rates for a longer period, the overall picture isn't much of an improvement.

“Although housing demand is strong due to a large percentage of first-time millennial homebuyers looking to purchase homes, they face the challenges of high mortgage rates and a shortage of available homes for sale,” Freddie Mac said in its April statement. “. “We expect these challenges to persist in 2024 mainly in the absence of significant interest rate cuts, which will keep the price lock-in effect in place and keep total home sales volume below five million in 2024.”

With the economic landscape steady, the main difference over the past month lies in interest rate expectations and when the Federal Reserve might start easing monetary policy.

A series of hotter-than-expected inflation readings at the start of the year has gradually eroded hopes that Fed rate cuts will be imminent. This led to US bond yields and mortgage interest rates rising steadily.

Then on Tuesday, Federal Reserve Chair Jerome Powell confirmed Wall Street's concerns by saying that given the strong labor market and remaining progress needed on inflation, interest rates would remain where they are “for as long as needed.”

Treasury yields rose to higher levels, with the 10-year interest rate surpassing 4.6%, sending other borrowing costs higher as well. The 30-year mortgage rate rose above 7% for the first time this year, according to a Freddie Mac reading Thursday.

These developments over the past month appear to have been the main catalyst for Freddie Mac's significant downgrade in its housing market outlook.

In March, he expected the Fed's interest rate cuts to begin as soon as the summer, with the mortgage interest rate remaining above 6.5% through the second quarter and then falling in the latter half of the year. While inventory will remain limited, “more first-time homebuyers continue to flood the housing market” and push home prices higher.

These forecasts have been removed from the April forecast. Instead, Freddie Mac said the Fed was now in “wait-and-see” mode before it begins easing, and declined to provide more specific guidance on interest rates. “So we expect mortgage interest rates to remain high for longer.”

The new forecasts come as rising home prices and mortgage rates have kept many Americans out of ownership. Redfin recently said the cost of owning a home is officially the highest it has ever been.

Potential buyers who held out last year were tired of waiting, as millennials who were late to start a family couldn't wait that long, Redfin CEO Glenn Kellman said. He said he had never seen anything like this before, calling it “the worst situation” for the housing market.

“Housing is in the doldrums, and the rest of the economy is booming,” Kelman said.