Last Thursday, December 14, Fannie Mae’s Economic and Strategic Research (ESR) Group issued a report with an updated economic and housing forecast for 2024.
While they expect a slowdown in the U.S. economy in the months ahead, they’re projecting a slow recovery for both home sales and mortgage originations.
At the start of 2023, the ESR Group was forecasting a modest recession in 2023, but the combination of disinflation and low unemployment suggests a soft landing is more likely.
As for housing, as they predicted, this year’s record-low housing affordability, lock-in effects, and a severe shortage of for-sale housing supply brought the pace of existing home sales to its lowest since the Great Financial Crisis.
However, the resilience of new home sales exceeded their expectations. And Fannie Mae now expects the recent drop in mortgage rates to drive an uptick in home sales.
Tune in to this episode of the Hot Sheet for a breakdown from Byron Lazine, and read on for more details on Fannie Mae’s revised outlook for the 2024 housing market.
DRIVERS OF SLOW SALES WILL PERSIST IN 2024, WITH MODEST IMPROVEMENT OVER 2023
By now, we’re familiar with the usual reasons for slowdowns in home sales:
While the ESR Group sees some relief ahead, for the most part, they expect all three to impact the housing market in 2024.
With the 10-year Treasury rate’s continued decline since the completion of their last forecast, they acknowledge some upside risk to their numbers for both sales and mortgage originations.
But with mortgage rates still comparatively high, they expect home sales to remain suppressed, with total sales ending 2023 at 4.8 million, with a similar pace of 4.8 million in 2024 and 5.4 million in 2025.
That said, this year’s growth in home prices and refinance activity has upgraded their forecast for total single-family mortgage originations:
- $1.5 trillion in 2023
- $1.9 trillion in 2024
- $2.3 trillion in 2025
They entered 2023 forecasting around 4 million existing home sales for the year—less than most other forecasters and the slowest pace since 2010.
While volatile mortgage rates throughout the year impacted the ESR Group’s outlook on the market, they held to a narrow range for their home sales forecast. And they expect the pace of home sales to show only marginal improvement over 2023 numbers.
October’s low point, where the annualized pace of home sales hit 3.79 million, is likely at or near the lowest point. And while October’s low in pending sales pointed to a drop in the next month’s home sales, purchase mortgage applications bounced roughly 15% off their trough in November, according to Mortgage Bankers Association, thanks to the drop in mortgage rates.
HOUSING FORECAST CHANGES
MORTGAGE RATES
Given the recent drop in interest rates, the ESR Group has lowered its forecast for mortgage rates this month and is now predicting an average FRM30 rate of 7.4% over Q4 2023.
From there, it expects an average FMR30 rate of 6.7% in 2024 and 6.2% in 2025.
The ESR Group completed this forecast on Monday, December 11. Rates have fallen further since then and are expected to remain volatile as the market transitions from tightening to loosening monetary policy in 2024, adding risk to Fannie Mae’s outlook for mortgage rates.
