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Lower mortgage rates should increase home sales and incentivize more homeowners to refinance in 2024, but it will take several weeks for home sales and mortgage lending to recover to pre-pandemic levels. It could take a year, Fannie Mae economists said Thursday.
among them latest forecastFannie Mae economists are much more optimistic than they were a month ago that mortgage rates have room to fall further, with 30-year fixed-rate mortgages available for less than 6% by the end of the year. Expect.
Lower mortgage rates will persuade more homeowners to put their homes on the market, with new and existing home sales likely to increase by 4% this year and another 13% in 2025. Fannie Mae predicts. Mortgage refinancing could nearly double to $490 billion, providing relief to struggling mortgage lenders.
doug duncan
Doug Duncan, Fannie Mae’s chief economist, said, “Home sales and mortgage originations could bottom out in the second half of 2023, as inflation declines and the Fed’s corresponding shift in policy suggests future rate cuts.” “The situation is expected to be highly stable, and a gradual improvement is currently underway.”be statement. “We expect mortgage rates to fall below 6% by the end of 2024 and home builders continue to add new supply, both of which should support affordability.”
Fannie Mae forecasters also reversed their previous view that the U.S. is likely to enter a recession this year. however, Explanation Fannie Mae economists said in their latest forecast that below-trend growth is still expected and the economy “remains at higher than normal risk of slipping into recession in 2024.”
Room for further decline in mortgage interest rates expands

sauce: fannie mae (January 2024) and Mortgage Bankers Association (December 2023) forecast.
Fannie Mae economists last month predicted that the average interest rate on 30-year fixed-rate mortgages would remain at 6.5% in the fourth quarter of 2024 and 6.1% in the fourth quarter of 2025.
Fed policymakers signaled in December that they expect to cut short-term federal funds three times this year, and mortgage rates have already fallen nearly to the level Fannie Mae had projected by the end of the year. There is.
This is part of the reason why Fannie Mae’s latest forecast expects mortgage rates to fall to an average of 5.8% in the last three months of this year and to an average of 5.5% in the fourth quarter of 2025. This is to explain. This brings Fannie Mae in line with its Dec. 12 forecast. The Mortgage Bankers Association has not released its January outlook.
Fannie Mae economists said Thursday that “mortgage rate forecasts for this month have been revised down significantly following the Fed’s ‘change of direction’ in December, expectations for further dovish policy, and recent interest rate declines.” said.
futures market tracked by CME FedWatch Tools Investors say they expect the Fed to cut short-term federal funds five to six times in 2024, lowering short-term interest rates by 1.25 to 1.5 percentage points.
“While we believe financial markets may be ahead of the curve on the extent of the Fed’s rate cuts this year (we currently expect a 100 basis point cut in 2024), short-term interest rates The outlook for both mortgage rates is now clearly lower than previously expected,” Fannie Mae economists said.
Home sales are expected to bottom out in 2023

sauce: Fannie Mae housing forecastJanuary 2024.
Fannie Mae expects new home sales to increase nearly 8% to 726,000 units in 2024 and existing home sales to increase 3.1% to 4.238 million units in 2024 due to lower mortgage rates. Fannie Mae economists last month predicted that new home sales would decline 1.2% to 673,000 units in 2024, while existing home sales would grow less than 1% to 4.119 million units.
Fannie Mae economists said, “November’s existing home sales were broadly in line with expectations.” “Our forecast revisions were primarily driven by a lower expected interest rate environment and the elimination of recession concerns.”
However, Fannie Mae economists said that even the more optimistic forecast indicates that “the pace of existing home sales will be relatively slow as affordability and undersupply remain challenges to the market.” He said it would be.
Approximately 90% of Fannie Mae-backed mortgage balances have interest rates below 6%, and lower interest rates can help some, but not all, homeowners feel less locked into the low interest rates on their existing mortgages. right.
“Even with interest rates below 6%, we still have a long way to go to significantly reduce the ‘lock-in effect’ experienced by homeowners who refinanced or purchased during the pandemic,” Duncan said. “There is,” he said.
The good news is that Fannie Mae economists expect the pace of home sales to post quarterly annual increases this year and next as mortgage rates fall and price increases slow.
Fannie Mae forecasters said, “However, housing affordability remains very low by historical standards relative to household income, and it will take many years to fully recover to pre-pandemic sales rates.” It is expected that it will cost more.”
Annual house price growth expected to slow

sauce: Fannie Mae housing forecastJanuary 2024.
After falling by 2.6% in the second quarter of 2023, house prices showed surprising strength in the second half of the year. Annual house price growth rose to 7.1% in the last three months of the year as mortgage rates retreated from their 2023 highs.
Fannie Mae economists expect home prices to continue rising due to lower mortgage rates, but that annual home price growth will begin to subside in the second quarter of 2024 and fall to 3.2% by year-end. Expect. Fannie Mae projects that by the fourth quarter of 2025, annual home price growth will be essentially flat at 0.3%.
Fannie Mae economists said, “Future easing in mortgage rates will help support home prices, but affordability will remain historically challenging.” “Coupled with a cooling labor market, we expect homebuyers’ ability to continue to drive up prices to be even more limited.”
Rents are expected to cool or fall in some markets, which could make renting more attractive to some prospective homebuyers.
Fannie Mae economists said, “If multifamily rents slow or even decline in many regions of the country, the rent-to-purchase calculus will be relatively favorable to multifamily rentals, putting upward pressure on single-family home prices. I think it will weaken.”
Mortgage purchase and refinance volumes are expected to increase

sauce: Fannie Mae housing forecastJanuary 2024.
“Although the number of single-family home loan originations is expected to remain sluggish, it will continue to grow in 2024 due to an increase in home sales, easing of mortgage interest rates, a declining trend in the proportion of cash in home sales, and continued positive growth in home prices. “We expect a significant increase to starting levels,” Fannie Mae economists said.
Fannie Mae expects refinances to increase 99% to $490 billion in 2024 and another 53% to $752 billion in 2025.
This level pales in comparison to the $2.67 trillion lenders refinanced in 2021, when interest rates were still near historic lows, but it is long-awaited for lenders, whose refinancing volume fell to just $246 billion last year. This could be a tailwind.
Purchase loan originations are currently expected to increase 19% to $1,487 billion in 2024 and 14% to $1,689 billion in 2025.
Fannie Mae’s forecasts were compiled by the Economic Strategic Research (ESR) Group, a group of eight economists and economic analysts. In addition to Mr. Duncan, ESR Group members include Mark Parim, Fannie Mae’s deputy chief economist; Eric Brescia and Nick Embry, Director of Economics; and economic analysts Nathaniel Drake, Richard Goyette, Daniel Shosinski, and Ryan Gavin.
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Email Matt Carter