At the beginning of the year, housing experts and homebuyers looked forward to better buying conditions — interest rates were poised to drop, a shift expected to free up inventory and cool surging home prices.
That outlook has mostly changed.
Nearly halfway through 2024, the highly anticipated interest rate cuts have yet to happen, home prices are still growing, and affordability remains a challenge.
"We all expected that at this point in the year, we would see stronger home sales activity, and interest rates [would be] down," Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR), told Yahoo Finance. "[Rates] moved back up into the 7% range, and that does put a damper on home sales activity, and it changes who can purchase a home."
Read more: Mortgage rates top 7% — is this a good time to buy a house?
Given the uncertainty, experts are widely revising their forecasts about rates and prices for the rest of 2024.
Higher mortgage rates for longer
Persistent inflation pressure has prompted the Federal Reserve to maintain its strict monetary policy until further data shows consistent signs of prices easing.
This likely means two things for the housing market: Mortgage rates will stay higher for longer and will stay relatively high even if and when the Fed cuts the benchmark interest rate — a move that can influence the mortgage market.
"I don't see mortgage rates declining significantly this year," Orphe Divounguy, Zillow's senior economist, told Yahoo Finance. "Mortgage rates are famously difficult to predict, but I'd be surprised if we ended the year with rates below 6%."
Many housing experts and financial institutions upward-revised their rate forecasts. Fannie Mae increased its year-end prediction to 6.4% from 5.9% earlier in the year. The NAR modified its forecast to 6.5% from 6.3%. Wells Fargo's May economic summary adjusted its monthly rate outlook to 6.50% from January's 6.05%.
Lautz attributed the changing expectations to persistent housing inflation, which makes up around a third of the Consumer Price Index (CPI) — an indicator used by the Fed to measure inflation. Rent and homeowners' equivalent rent (OER), measuring housing costs, were two of the three largest inflation contributors in April.
"There's more people in the rental market because they can't afford to save for a down payment, and they can't afford to save for a down payment because rent is high," Lautz said, adding that this resembles a “feedback” loop — one where inflationary pressure keeps rates high, which elevates home costs, which in turn squeezes renters.
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