Big Players Revise Housing Forecasts in the Wake of the Election

The recent presidential election has prompted key housing market analysts to revise their mortgage rate forecasts upward and sales forecasts downward, reflecting concerns over potential inflationary pressures and shifts in Federal Reserve policy. Both the Mortgage Bankers Association (MBA) and Fannie Mae have updated their projections, anticipating higher rates and moderated housing activity in the coming years.

MBA’s Revised Outlook

In its latest mortgage finance forecast, the MBA now expects 30-year fixed mortgage rates to range between 6.4% and 6.6% in 2025, maintaining a level of 6.3% in 2026. This marks an increase from its October forecast, which projected rates between 5.9% and 6.2% for 2025 and 5.9% for 2026.

The MBA’s adjustments are influenced by the election outcome and the Federal Reserve’s cautious stance on rate cuts. The association also revised its mortgage origination volume forecast for 2025 downward to $2.1 trillion from the previous estimate of $2.3 trillion. Additionally, it projects existing home sales at a seasonally adjusted annual rate of 4.25 million in 2025, slightly below the October forecast of 4.3 million.

Fannie Mae’s Updated Projections

Fannie Mae has revised its housing market outlook, adjusting interest rate forecasts upward while scaling back expectations for home sales. The organization now predicts the 30-year fixed mortgage rate will average 6.7% in 2024 and 6.4% in 2025, a significant increase from prior forecasts of 6.0% and 5.6%, respectively. The revision reflects higher bond yields and persistent inflationary pressures following recent economic data and the 2024 election.

Consequently, Fannie Mae has downgraded its home sales forecast. Existing home sales are projected to reach just 4.01 million in 2024, the lowest in nearly three decades, and 4.18 million in 2025, down from previous estimates of 4.06 million and 4.52 million. Sales are expected to recover to 4.89 million by 2026 as mortgage rates ease, affordability improves, and more sellers enter the market. These revisions underscore the ongoing challenges of affordability and constrained inventory in the housing sector. Fannie Mae Economic News

Impact of Election and Economic Policies

The election of President Donald Trump has introduced uncertainty into economic forecasts, particularly concerning trade policies. Proposed tariffs on foreign goods, including a 10% blanket tariff and higher rates on Chinese and Mexican imports, have raised concerns about potential inflationary effects. Economists warn that such measures could reignite inflation, prompting the Federal Reserve to reconsider its approach to interest rate cuts or even contemplate rate increases.

That said, interest rates spiked after Trump’s 2016 election as well because analysts figured tariffs and tax cuts, without corresponding reductions in government spending, would produce inflation. However, by the September of 2019 (and before the start of the pandemic) mortgage rates were down to where they were before his election. So, the fact that the first Trump administration did not produce the expected inflation (at least, not until the reaction to the Covid-19 pandemic produced one in Biden’s term), increases the probability that the market is missing its mark this time as well. 

Conclusion

In the near term, industries reliant on home sales and mortgage originations should brace for prolonged challenges. Elevated interest rates, coupled with constrained inventory and affordability issues, are likely to suppress market activity through 2025. A meaningful reduction in rates seems unlikely without a significant economic downturn that compels the Federal Reserve to pivot aggressively or brings Treasury yields lower.

However, historical patterns suggest that markets can overshoot in their initial reactions to political and economic developments. While the current outlook is pessimistic, the muted inflationary impact of previous policies under the Trump administration offers a glimmer of hope that forecasts could once again prove overly cautious. Should inflationary pressures ease and economic conditions stabilize, the housing market could see a quicker-than-expected recovery, particularly if policy adjustments create more favorable borrowing conditions.

For now, stakeholders must navigate a challenging environment, but long-term opportunities may arise as markets adjust to evolving economic realities and political landscapes.

Billy Guteng

Billy is a content writer for Kukun. He was born in France, and has lived in multiple cities around the world ever since. He loves art, design and architecture as well as construction and real estate.

Published November 27, 2024