FANNIE MAE: 2024 MORTGAGE RATES TO DIP BELOW 6%
FANNIE MAE: 2024 MORTGAGE RATES TO DIP BELOW 6%
“Overall, we expect 2024 to be a better year than 2023 for homebuyer affordability and the mortgage industry,” Fannie Mae’s chief economist said.
WASHINGTON – The housing market will begin a gradual return to a “more normal balance” in 2024, and mortgage rates are expected to end the year below 6%, Fannie Mae analysts said.
Fannie Mae’s Economic and Strategic Research (ESR) Group said the lower rate environment should boost refinance volumes, which are already on the upswing. Lower rates are also likely to loosen the so-called lock-in effect that’s had a stronghold on the market.
“In fact, the ESR Group expects the annualized pace of existing home sales to move up to 4.5 million units by the fourth quarter of 2024, compared to 3.8 million in Q4 2023,” Fannie Mae analysts said in the January report. “However, a full recovery to the pre-pandemic sales rate is expected to take years, as housing affordability remains stretched extremely thin by historical standards relative to household incomes.”
At the same time, housing supply shortages and affordability constraints will continue to bolster the market for new single-family homes, with 2024 starts and new home sales forecast to top 2023 levels.
The ESR Group also said home prices are expected to rise 3.2% over the year, compared to 7.1% in 2023. While the latest forecast continues to project a slowdown in economic growth in 2024, the ESR Group anticipates a brighter economic backdrop compared to previous months, replacing its call for a modest recession with positive-but-below-trend growth in 2024.
The ESR Group noted the rapid recent easing in financial conditions, the Federal Reserve’s December meeting and the solid, upward trend in real personal income growth in October and November as positive impulses for growth over the coming quarters. But, the group said, the economy still faces a higher-than-normal risk of recession.
“Inflation’s decline and the resultant Fed pivot to signaling future rate cuts rates lead us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023 and that a gradual improvement is now underway,” Doug Duncan, Fannie Mae senior vice president and chief economist, said.
“We expect mortgage rates to dip below 6% by year-end 2024 and for homebuilders to continue to add new supply, both of which should aid affordability. Additionally, the decline in mortgage rates is likely to push refinancing volumes upward, along with some pickup in purchase financing. However, even at less than 6 percent, we think rates will still have a significant way to go in order to meaningfully reduce the ‘lock-in effect’ experienced by homeowners who refinanced or bought during the pandemic. Overall, we expect 2024 to be a better year than 2023 for homebuyer affordability and the mortgage industry.”
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