Fannie Mae is forecasting that the housing market will gradually improve in 2024, as mortgage rates decrease and home builders ramp up production.
According to the firm’s Economic and Strategic Research (ESR) Group, the market will begin to stabilize after years of significant oscillations in mortgage rates and divergences of key housing market measures from their historical, pre-pandemic relationships.
Fannie predicts mortgage rates will end the year below 6%. This drop in rates, in turn, will boost refinance volumes, which are already on the upswing, as evidenced by the recent uptick in Fannie Mae’s Refinance Application-Level Index, to nearly double their 2023 levels.
Lower rates are also likely to help “thaw” the existing home sales market currently affected by the so-called “lock-in effect.” 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 the fourth quarter of 2023.
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.
“In 2024, we expect home sales and mortgage origination activity to begin a gradual recovery in the presence of a slow-growing economy,” says Doug Duncan, senior vice president and chief economist for Fannie Mae, in a statement. “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. We expect mortgage rates to dip below 6 percent by year-end 2024 and for homebuilders to continue to add new supply, both of which should aid affordability.”
Photo: Nicole Avagliano