Stronger-than-expected job growth in August and significant upward revisions to personal income data suggest a more sustainable consumer spending trend than anticipated just a month ago.
Such resilience led Fannie Mae's Economic and Strategic Research (ESR) Group to raise its predictions of macro-economic growth heading into 2025. The Group's October 2024 commentary shows projected growth of 2.3% in 2024, up from last month’s forecast of 2%, and 2% growth in 2025, up from 1.8%. These figures reflect slowed economic growth from 2023's 3.2%.
The ESR Group had previously anticipated a pullback in consumption growth due to its unsustainable pace relative to income, but updated data indicates that the economy might be finding its footing.
The decline in longer-term interest rates in September led the ESR Group to revise downward its mortgage rate forecast for 2024. The Group's report said, "We continue to forecast the 30-year fixed mortgage rate to average 6.6% in 2024 (unchanged from last month’s forecast) and to average 5.7% in 2025 (down two-tenths from last month’s forecast). However, interest rates remain volatile, particularly given changes to Fed policy expectations, which adds risk to our outlook."
Following data revisions and recent employment reports, bond market expectations for rate cuts have shifted closer to the Federal Reserve's dot plot in its latest Summary of Economic Projections. Consequently, the 10-year Treasury yield has risen over 40 basis points from its mid-September low. The ESR Group also projects annual home price growth of 5.8% in 2024 and 3.6% in 2025, slight adjustments from previous forecasts of 6.1% and 3.0%, respectively.
"While potential homebuyers have noticed the decline in mortgage rates over the last few months, they are equally aware that there has been little relief on the home price side, the other primary driver of unaffordability, particularly for first-time buyers," said Fannie Mae Senior Vice President and Chief Economist, Mark Palim. "The timing of the long-expected pick-up in home sales activity, as well as a further moderation in home price appreciation, will depend in part on the willingness of current homeowners to relinquish their low mortgage rates by offering their homes for sale. Of course, continued strong homebuilding activity will also play a significant role as the shortage of national housing stock remains the primary impediment to affordability."
The ESR Group also updated its 2023 mortgage origination volume estimate as part of its annual benchmarking process, incorporating the latest Home Mortgage Disclosure Act (HMDA) data. The Group's 2024 forecast for purchase mortgage volumes remains steady at just over $1.3 trillion. In 2025, the ESR Group expects purchase mortgage volumes to increase to $1.5 trillion as home sales recover from recent lows and home prices continue to appreciate. Refinance volumes are projected to grow to $625 billion in 2025, supported by a gradual decline in mortgage rates.
