Fannie Mae Expects Home Sales to Bottom Out? Here’s What the Latest Forecast Says

Fannie Mae predicts recession in 2024 in latest report economic development report. As a result, home sales are expected to bottom out next year and eventually improve in 2025.

A recession in 2024 has been repeatedly predicted by think tanks, individual economists, and financial experts. Fannie Mae added its own prediction to the chorus of experts saying the same thing: Despite a strong economy, the United States will head into a mild recession next year.

An economy built on a shaky foundation means an inevitable crash.

Why is this the most likely economic trajectory? As an example, Fannie Mae experts point out: High GDP as of Q3 4.9% in 2023 is very healthy, but its fundamentals are shaky. This is economic growth driven by debt spending rather than significant increases in real incomes.

In fact, real income growth in the third quarter was a very modest 0.6% annualized. At the same time, savings rates have declined, at 3.4% over the same period, a far cry from a robust 7% before the pandemic.

All of these factors indicate that the current spending levels supporting the economy are unsustainable.Fannie Mae predicts that consumption expenditure In 2024, it will decline and a more “normal” relationship between spending and income will return.

Therefore, Fannie Mae believes that GDP in 2024 will decline by 0.4% on a Q4/Q4 basis, but is expected to be negative due to the timing of the Q4 year-end report. This does not indicate a “serious economic downturn.”

The good news in Fannie Mae’s forecast is that if a recession were to occur, it would be very mild and would not last until 2025, when the economy is expected to recover, resulting in an overall GDP growth of 1.6% in 2025. It is predicted that .

Anyone who has read economic forecasts knows that labor market trends are a reliable indicator of the overall direction of the economy. As the report notes, the unemployment rate has been steadily increasing as of October. It currently stands at 3.9%, up 0.5% from April’s level. Both new and continuing unemployment claims are increasing, which could signal another recession.

What about real estate?

Again, these are not alarming numbers and are good news for the economy in the long run. But the news isn’t so good for the housing market. Paradoxically, these unemployment rates are not high enough to cause an immediate change in interest rates.

“Given that the unemployment rate remains below 4%, premature monetary easing risks reinvigorating inflation, so the U.S. Federal Reserve will continue to do so in the coming months,” Fannie Mae’s report said. “We do not expect them to cut rates quickly in the interim.”

Needless to say, continued high Fed interest rates will lead to higher mortgage rates and hinder home sales. Fannie Mae’s (FNMA/OTCQB) Economic Strategic Research (ESR) Group expects the situation to get worse before it gets better. According to the ESR report, home sales are expected to bottom out in early 2024.

However, there is a silver lining to this prediction. Interest rates will start falling from the second half of 2024, Fannie Mae expects it to average 6.8% by the end of the year. This will occur regardless of whether there is a recession or a long-awaited “soft landing,” since the Fed’s fiscal policy is largely working toward the desired goal of lower inflation.

final thoughts

Overall, it could be much worse. The housing market is currently suffering from high interest rates and supply constraints, but this will eventually improve.

Doug Duncan, Fannie Mae’s senior vice president and chief economist, said the ESR report’s results were “not surprising,” adding:

“The housing problem has been and continues to be serious. affordability pressure, as a result, home sales activity reached recession levels. Although many current owners with low mortgage interest rates will continue to be hesitant about listing their homes, we predict that mortgage interest rates will be on a gradual downward trend in 2024, and this will continue in 2025. This will likely trigger a gradual recovery in housing sales. ”

This is not to say that home sales will return to near pre-pandemic levels. Fannie Mae experts say a return to this level of sales “will likely take many years.” But the housing market will soon reach its worst. Fannie Mae predicts that the economy will bottom out in 2024.

Investors should be prepared. The housing market isn’t falling off a cliff, it’s just nearing the bottom of a trough.

Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.