Hot Economy, Inflation Likely to Keep Rates ‘Higher for Longer’

By klrw460 April 23, 2024

WASHINGTON, DC – Recent economic and inflation data, which has been stronger than anticipated, has led to an increase in interest rates and a shift in financial market expectations, reducing the likelihood of Federal Reserve rate reductions this year, according to the April 2024 analysis from the Fannie Mae Economic and Strategic Research (ESR) Group. Rising mortgage rates are expected to pose challenges to the recovery of home sales and overall affordability for buyers. Nonetheless, the ESR Group observed a continued rise in new home listings. They predict a slight increase in existing home sales throughout the year, but anticipate new listings will surpass sales, which should help ease the housing inventory and slow down the rate of home price increases. However, with robust incoming data on home prices, the ESR Group has adjusted its forecast for home prices to increase by 4.8 percent in 2024—1.6 percentage points higher than previous estimates—and by an additional 1.5 percent in 2025.

Despite earlier predictions of rate cuts, recent strong economic performances and significant inflation figures have led to a pause. The ESR Group still projects a slowdown in employment and economic growth and aims for a 2-percent inflation rate in the future. Yet, they have revised their inflation expectations upward, now forecasting the Consumer Price Index to close 2024 at a 3.1 percent annual rate, up from the previously anticipated 2.5 percent.

Hamilton Fout, Vice President of Economic and Strategic Research at Fannie Mae, commented, “Following unexpectedly high inflation reports and continued strong job gains, financial markets have swiftly adjusted their views on interest rates. Although we anticipate a moderation in economic growth and inflation, which should lead to a decrease in mortgage rates, the reality of enduring higher interest rates is becoming more accepted by market participants and some homebuyers and sellers. Despite higher mortgage rates potentially slowing the home sales recovery and exacerbating long-term affordability issues, we are starting to see more homeowners adapt to these rates and list their properties for sale.”

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