The analysts at Fannie Mae predict that the housing market will gradually return to a more balanced state by 2024, and that mortgage rates will end the year below 6%.
According to Fannie Mae’s Economic and Strategic Research (ESR) Group, the recent decrease in interest rates is expected to increase the volume of mortgage refinances, which is already on the rise. Additionally, the lower rates are likely to reduce the lock-in effect that has been a major factor in the market.
According to Fannie Mae analysts in their January report, the ESR Group expects the annualized pace of existing home sales to increase to 4.5 million units by Q4 2024, compared to 3.8 million by Q4 2023. However, it is anticipated that it will take years to fully recover to the pre-pandemic sales rate due to housing affordability remaining stretched extremely thin by historical standards relative to household incomes.
By 2024, new single-family homes are expected to experience growth in starts and sales, despite affordability constraints and a shortage of housing supply.
The ESR Group has released a report stating that home prices are expected to rise by 3.2% in the upcoming year, which is a decrease from the 7.1% increase seen in 2023. While the latest forecast predicts a slowdown in economic growth during 2024, the ESR Group anticipates a more positive economic situation compared to previous months. The report replaces its earlier prediction of a modest recession with positive growth that is still below the trend for 2024.
The ESR Group has pointed out that there has been a significant easing in financial conditions recently, the Federal Reserve’s meeting in December was positive, and there has been a steady increase in real personal income growth in October and November. These factors are considered favorable for growth in the upcoming quarters. However, the group has also acknowledged that the economy still faces a higher-than-normal risk of recession.
Doug Duncan, the Senior Vice President and Chief Economist of Fannie Mae, has stated that the decline in inflation and the subsequent Federal Reserve pivot towards indicating future rate cuts has led them to believe that home sales and mortgage originations probably hit their lowest point in the second half of 2023. They are now expecting a gradual improvement in the market.
“We anticipate that mortgage rates will fall below 6% by the end of 2024, and homebuilders will keep adding new homes, which will improve affordability. Furthermore, the drop in mortgage rates is expected to increase refinancing volumes and support some growth in purchase financing. However, we believe that even with rates less than 6%, homeowners who refinanced or bought during the pandemic will still face significant challenges. Overall, we predict that 2024 will be a better year than 2023 for homebuyers and the mortgage industry, with increased affordability.”
