Last week, Fannie Mae released its revised housing forecast, which projects that national home prices as measured by the Fannie Mae Home Price Index will decrease by 1.2% in 2023 followed by an additional 2.2% decline in 2024. Back in February, Fannie Mae had predicted that national home prices would fall 4.2% in 2023, followed by another 2.3% dip in 2024.

Why did Fannie Mae revise its home price outlook upward? It boils down to the fact that there’s an ongoing shortage of homes for sale, which continues to support home prices and single-family home construction activity, wrote Doug Duncan, chief economist at Fannie Mae, in a statement released last week.

Despite last year’s mortgage rate shock—going from an average 30-year fixed mortgage rate of around 3% to close to 7%—national home prices have shown resilience, outperforming earlier expectations. According to Duncan, this resilience is also supported by strong demand fueled by demographic factors.

“Demand for housing has exceeded expectations due to Baby Boomers aging in place and Gen-Xers locking in historically low rates, both of which have helped keep housing supply at historically low levels,” Duncan writes. “Homebuilders continue to add to that supply, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time.”

While Fannie Mae doesn't expect national home prices to crash, the firm's latest forecast does have national home prices coming down a bit more. If Fannie Mae's forecast model comes to fruition, home prices would end December 2024 down 3.4.% from December 2022.

In order for that to happen, the U.S. housing market would need to slip back into correction mode in the seasonally slower second half of the year, and blow off all the national gains made this spring.

Keep in mind that when a group like Fannie Mae says the "U.S. housing market" or "U.S. home prices," it's talking about the national aggregate. It's possible that declines in overheated Western markets could push national home prices lower while some parts of the country, like the Midwest and Northeast, keep moving upward.

Heading forward, Fannie Mae's revised forecast model has the average 30-year fixed mortgage rate drifting down to 6.3% by the end of 2023, and to 5.6% by the end of 2024. This chart shows Fannie Mae's entire June 2023 housing forecast.