Fannie Mae's Economic and Strategic Research is predicting that mortgage rates will decline in 2024 and mortgage originations will increase.
The group is predicting mortgage rates will end the year below 6%.
With an expectation of rising home sales, moderating mortgage rates, a downward drift in the cash share of home sales, and continued positive home price growth, the group forecasts single-family mortgage origination dollar volume to grow significantly in 2024, albeit from a depressed starting level.
It expects 2024 single-family purchase origination volumes will be $1.5 trillion, a 19% increase from $1.3 trillion in 2023.
It estimates that roughly 90% of outstanding Fannie Mae single-family conventional 30-year fixed rate mortgage loans currently have a note rate below 6%. So, while many recent borrowers from 2023 will begin to face meaningful benefits by refinancing, a strong refinance wave driven by rate-term borrowers is not expected in 2024.
Even as rates moderate, the group expects continued interest in cash-out refinancing relative to past periods, especially given heightened levels of aggregate homeowner equity available following the home price gains of the last few years. It projects 2024 single-family refinance volumes for the overall U.S. market will be $490 billion, up from only $246 billion in 2023. Despite this being a near doubling of volumes, it is at a level still 33% below 2022 refinance originations.
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. 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,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said. “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."
The ongoing lack of supply and affordability constraints in the existing homes market are expected to continue to bolster the market for new single-family homes, with 2024 starts and new home sales forecast to top 2023 levels. Overall, though, the ESR Group expects that the slowly normalizing existing homes market, as well as additional housing supply from the construction of new homes, will help keep further home price growth in check in 2024. It's predicting that home prices are now expected to rise 3.2% over the year, compared to 7.1% in 2023.
At the same time as the housing and mortgage market improves, the group is projecting an economic slowdown, underscoring that the current forecast includes heightened uncertainty and significant downside risks.
