\n
![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/08\/GettyImages-1422164284-e1724609326778.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
With rate cuts from the Federal Reserve looking more imminent, the housing market outlook has taken another sharp twist.<\/p>\n
According to Freddie Mac\u2019s latest forecast<\/a> released on Tuesday, home prices will rise 2.1% in 2024 and 0.6% in 2025, marking the latest head-spinning turn, especially for this year.<\/p>\n In April, the mortgage giant said home prices will increase only 0.5% in 2024 and 2025<\/a>, down sharply from its\u00a0forecast in March<\/a>, when it predicted prices would rise\u00a02.5% in 2024 and 2.1% 2025.\u00a0<\/p>\n Freddie Mac refrained from offering fresh home-price guidance between April and now, opting instead to switch to a quarterly cadence. That proved prescient as the dust has only recently settled from major upheavals in the markets and economic data.<\/p>\n A string of higher-than-expected inflation readings in the spring made the prospect of Fed rate cuts look more and more distant, sending bond yields and mortgage rates higher. <\/p>\n But that flipped in the summer as the latest inflation rate hit a three-year low<\/a>, making a rate cut next month look more certain. And on Friday, Fed Chair Jerome Powell basically confirmed that view, saying \u201cthe time has come\u201d to cut<\/a>.\u00a0<\/p>\n Mortgages rates have come down sharply in recent weeks and are edging closer to 6%, the \u201cmagic number\u201d<\/a> that some experts think will trigger more loosening in the housing market.<\/p>\n Freddie Mac sees a big surge in demand, mainly from first-time homebuyers. But other parts of its outlook are more mixed, similar to its big upward revision to 2024 home prices versus a more muted take on 2025.<\/p>\n \u201cWe also expect lower rates to loosen the rate lock-in effect to some extent, providing some boost to inventory\u2014although it should be minimal, given the bulk of existing homeowners have locked-in rates below 6%,\u201d it said. \u201cDespite some loosening, the tight inventory (due to a decade of under construction, further exacerbated by the rate lock-in effect) is still expected to limit home sales.\u201d<\/p>\n The result should be only a modest increase in home sales for the rest of the year and 2025, remaining below an annual pace of 6 million.\u00a0<\/p>\n Still, Freddie Mac remains optimistic overall and doesn\u2019t expect the economy to tip into a recession.<\/p>\n \u201cWhile prospective homebuyers continue to face affordability challenges due to high home prices, homeowners are experiencing significant wealth gains which makes them less vulnerable to adverse economic events,\u201d it said.<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>High-level insights for high-powered executives. Subscribe to the CEO Daily newsletter for free today. Subscribe now<\/a>.<\/div>\n