Inman News

As for-sale listings continue to surge, many would-be homebuyers are still having trouble finding properties that they can afford. Prices are already coming down in some markets

Home price appreciation should slow dramatically next year if listings continue to surge but would-be homebuyers still have trouble finding properties that they can afford, economists say.

Economists at Fannie Mae and the Mortgage Bankers Association are predicting that annual home price appreciation will fall to about 3 percent by the final quarter of 2025, less than half the current rate. That’s a national forecast, so many local markets where supply exceeds demand could see price declines — some already have.

Realtor.com data shows active for-sale listings were up 37 percent in June from a year ago, but the pace of sales remains subdued, Fannie Mae economists said Tuesday in commentary accompanying the release of their latest economic and housing forecasts.

The National Association of Realtors reported Tuesday that June home sales were down 5.4 percent from a year ago and that the median sales price was up 4.1 percent from a year ago, to an all-time high of $462,900.

“The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises,” Fannie Mae Chief Economist Doug Duncan said in a statement. “The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers.”

Home prices have shown surprising strength this year, with Fannie Mae’s Home Price Index projected to show home values rose 6.9 percent from a year ago during the second quarter.

But markets where listings are still below pre-pandemic levels are experiencing the strongest price appreciation. In some markets where listings have surged past pre-pandemic levels, home prices are already starting to come down, Fannie Mae economists noted, citing Zillow data.

Zillow data shows home prices continued to appreciate in 46 of the 50 largest metro areas in June, led by San Jose (12 percent), Hartford (10.5 percent), San Diego (9.4 percent), Providence (7.7 percent) and Los Angeles (7.6 percent).

But Zillow reported home values were down from a year ago in June in four big metros: New Orleans (-6 percent), Austin (-4.6 percent), San Antonio (-2.7 percent), and Birmingham (-0.6 percent).

“Many large metros in the Sunbelt … now have inventory levels that match or even exceed for-sale inventories in 2019,” Fannie Mae economists said, with total inventories in Florida and Texas “at or even a bit above” where they were before the pandemic.

“We continue to expect home price growth on a national level to decelerate – but remain positive — over the near term, but it should be noted that conditions often vary by region, particularly as it relates to supply,” Duncan said. “For instance, many Sunbelt metros are currently seeing significant increases in for-sale inventories, in part due to new construction, while supply in much of the Northeast and Midwest remains extremely tight.”

The varied market conditions have Fannie Mae economists predicting that new home sales will decline slightly this year, while sales of existing homes may see only a small bump. Sales of new and existing homes are expected to climb 9.3 percent next year.