The Fannie Mae Economic and Strategic Research (ESR) Group is predicting a modest uptick in existing home sales and new single-family housing starts for the year.
"We expect total home sales in 2024 to rise five percent to 5.00 million units, a slight upgrade from 4.96 million units in our prior forecast. We expect the 30-year fixed mortgage rate to decrease to 5.9% by the end of 2024, a tick higher than our prior outlook," the ESR group says.
While housing affordability remains a significant concern due to the recent surge in home prices, there are encouraging signs of progress, according to the ESR Group. The supply of existing homes available for sale is starting to loosen, offering a glimmer of hope for potential buyers. Moreover, recent data from Fannie Mae's January 2024 Home Purchase Sentiment Index indicates that more households anticipate a decline in mortgage rates. This newfound optimism may signal a growing willingness among buyers to enter the market.
"Despite the slight upward revision to home sales, incoming mortgage application data, combined with an adjustment to the projected cash share of home sales, caused a modest downward revision to our forecast for mortgage originations," the group says. "We forecast total mortgage origination volume will be $1.92 trillion in 2024 (compared with $1.98 trillion in our previous forecast) and $2.36 trillion in 2025 (compared with $2.44 trillion in our previous forecast)."
According to the ESR Group's latest projections, mortgage rates are expected to decrease to 5.9% by the end of 2024 and further to 5.7% by the end of 2025, albeit with slight increases compared to the previous month's forecast. Additionally, despite a temporary pullback, the forecast anticipates a positive trend in single-family housing starts for 2024. This optimism stems from a twelve-month consecutive increase in permits and a robust demand for new homes.
The ESR Group's upgraded macroeconomic growth outlook for 2024 is fueled by a stronger-than-expected Q4 2023 gross domestic product (GDP) report, coupled with favorable population growth and immigration trends. However, the pace of economic expansion is expected to be slower than in 2023. Factors contributing to this tempered growth include a persistently low savings rate, which may dampen consumer spending, and indications of softness in the labor market.
"Market dynamics continue to reflect significant uncertainty regarding the sustainability of stronger-than-expected recent GDP growth, the continuity of the decline of inflation, and the path of monetary policy change, not to mention the many ways in which historical relationships in housing and the larger economy remain out of balance post-pandemic," Fannie Mae Senior Vice President and Chief Economist Doug Duncan, said. "Right now, our base case scenario foresees economic growth decelerating, rates gradually declining, and new single-family home sales slowly recovering as construction adds supply. However, if economic growth continues to surprise to the upside, then we believe the risk of mortgage rates remaining higher for longer will also increase."
