Fannie Mae expects U.S. home prices to rise in 2024—Morgan Stanley still disagrees

Among home price forecasts tracked by ResiClub, a slight majority expect U.S. home prices to rise in 2024—with the average forecast projecting a +1% jump this year.*

However, most of those models were calculated when mortgage rates were still above 7.00%, and prior to Federal Reserve Chair Jerome Powell’s speech last month, which led market analysts to believe that the first Fed rate cut is likely to occur in March or May.

That raises the question: Has the fact that the average 30-year fixed mortgage rate has fallen to 6.75% caused forecasters to adjust their price expectations for 2024?

So far, the answer appears to be not really.

According to the latest forecast model produced by Fannie Mae, which was published in late December, the firm expects U.S. home prices to rise by +2.8% in 2024. This price forecast remains unchanged from the one released in November, which also anticipated the 30-year fixed mortgage rate to average 7.1% in Q4 2024. Fannie Mae now expects mortgage rates to average 6.5% in Q4 2024.

On the other side of the spectrum, Morgan Stanley’s housing team still remains a little bearish for 2024 despite mortgage rates falling back under 7.00%.

“When we published our year end forecast, we were expecting [housing] affordability to improve…If mortgage rates were to stay here that improvement would be occurring far more quickly than we originally anticipated,” Morgan Stanley housing strategist James Egan said on a recent Morgan Stanley podcast.

Egan added that Morgan Stanley originally anticipated existing home sales would rise 2.5% in 2024, while new home sales would rise 7.5%. But “if this affordability improvement were to really solidify here” they’d expect a slightly bigger sales improvement in 2024.

But despite predicting that home sales will rise this year, Morgan Stanley’s forecast model still expects U.S. home prices, as measured by Case-Shiller, to fall -3% in 2024.

“While we do expect [home] sales to increase, we’re also expecting for sale inventory to increase [in 2024]. Even if only at the margins. What our models are telling us is that increasing off multi-decade lows from an inventory perspective, is enough to push [national] home prices down a little bit in 2024 despite the increase in [housing] demand we’re forecasting. We’re still calling for [national] home prices to decrease by about -3% year-over-year,” Egan said.

But that would hardly be a crash, let alone a “material” correction.

“I would stress we think this is a moderation, not a correction in [national] home prices. We also don’t think there’s a lot of downside down below that -3% number as homeowners do remain the strong hands in this cycle. By that we mean we don’t think they are going to be forced to sell into materially weaker bids. That has, and will continue, to add a lot of support for home prices this cycle. We just don’t think that support doesn’t mean home prices can’t decline marginally on a year-over-year basis in 2024,” Egan said.

*When ResiClub published our roundup of home price forecasts in December, we inadvertently omitted Wells Fargo, which is forecasting a +2.5% increase in U.S. home prices for 2024. After incorporating Wells Fargo's projection, the average outlook for this year increased from +0.8% to +1%."

Subscribers who upgrade to ResiClub PRO are permitted to use our ResiClub branded charts in their personal marketing materials. If you have any questions, feel free to message me at [email protected]