Strong employment numbers and hotter-than-expected inflation data won’t provide the Federal Reserve greater confidence to ease its monetary policy in the near term, Fannie Mae’s Economic and Strategic Research (ESR) group said this week.

As a result, 30-year mortgage rates will remain higher for longer than expected.

In contrast to its previous forecast that mortgage rates will end the year below 6%, the ESR group now expects the 30-year fixed rate will close 2024 at 6.4%. 

​​“Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast, as markets continue to evolve their expectations of future monetary policy,” Doug Duncan, Fannie Mae’s senior vice president and chief economist, said in a statement.

Annual inflation increased to 3.2% in February and employers added 275,000 jobs last month — figures that came in higher than expected and reflected continued economic strength.

The Federal Reserve is likely to hold interest rates steady on Wednesday after policymakers wrap up their two-day meeting. An update of the central bank’s quarterly economic projections on Wednesday will provide a clearer picture of when rate relief might be in the cards.

“Still, while we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 — even if mortgage rates remain elevated,” Duncan said. 

Fannie Mae revised down its total home sales forecast to 4.91 million for 2024, down from its previous projection of 5 million.

But the government-sponsored enterprise also expects that existing home sales will trend upward in 2024, due in part to increased activity by households that will need to move due to life events and that are less sensitive to the interest rate lock-in effect.

“While we do not explicitly forecast new home listings, a future rise in listings is also expected to outpace the growth in sales, leading to a gradual loosening of the currently very tight housing market,” the ESR group stated.

“An increase in the months’ supply of homes for sales should also lead to some deceleration in home price growth over the next several years, even if a general lack of supply keeps home price appreciation positive despite affordability measures being stretched.”

Fannie Mae expects purchase mortgage origination volume to be $1.4 trillion in 2024, representing 12% growth from 2023 but a downgrade of $90 billion from its prior forecast.

Refinance originations are projected to total $397 billion, or $62 billion less than the prior forecast.

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