Brighter Days Ahead: Fannie Mae Predicts Sub-6% Mortgage Rates in 2024

I'm thrilled to share some uplifting news from Fannie Mae. Their latest forecast paints a picture of optimism for homeowners and prospective buyers alike, predicting a dip in mortgage rates below the 6% mark by the end of 2024. This shift promises to rejuvenate the refinance volumes and breathe new life into the existing home sales market.

The past few years have been a rollercoaster in the world of mortgage rates, leaving many of us yearning for stability. It seems our wait may soon be over. Fannie Mae's Economic and Strategic Research (ESR) group projects a budding recovery in home sales and mortgage origination activity, unfolding against the backdrop of a steady, albeit slowly growing, economy.

Doug Duncan, Fannie Mae’s Senior Vice President and Chief Economist, brings us deeper insights. "With inflation on the retreat and the Federal Reserve hinting at future rate cuts, we're starting to see the light at the end of the tunnel. Home sales and mortgage originations, which likely hit their low in the latter half of 2023, are now on the path to recovery. We’re expecting mortgage rates to fall below 6% by the close of 2024, coupled with a continued rise in new housing supply, enhancing overall affordability," he explains.

The ESR group’s forecast is not just numbers; it's a beacon of hope. They predict a leap in the annualized pace of existing home sales to 4.5 million units by the fourth quarter of 2024, up from 3.8 million in the previous year's final quarter.

Moreover, Fannie Mae anticipates a balanced growth in the existing homes market and an increase in housing supply from new constructions. This combination is expected to keep a lid on further home price surges in 2024. Home prices, which climbed by 7.1% in 2023, are now projected to rise by a more moderate 3.2% over the course of 2024.

Let’s talk numbers in terms of origination volume for 2024. Fannie Mae is forecasting the total single-family mortgage originations volume at a robust $1.98 trillion in 2024, with a further increase to $2.44 trillion anticipated in 2025. This marks a significant jump from $1.50 trillion in 2023.

Breaking down these figures, about $1.5 trillion of the 2024's origination volume is expected from purchase origination, showing a 19% rise from $1.3 trillion in 2023. However, the refinance mortgage origination volume is predicted to stay modest, as approximately 90% of outstanding Fannie Mae single-family conventional 30-year fixed-rate mortgage loans currently have a note rate below 6%.

"While many borrowers from 2023 will start to see tangible benefits from refinancing, we don’t foresee a massive refinance wave driven by rate-term borrowers in 2024. Nevertheless, the interest in cash-out refinancing is likely to remain strong, especially given the substantial homeowner equity accumulated following the recent surge in home prices," notes the ESR group.

Turning our gaze to the broader economic landscape, Fannie Mae's outlook for 2024 has taken a positive turn. Replacing its earlier prediction of a recession with an expectation of "below-trend growth," the organization acknowledges the positive economic signals. The rapid easing in financial conditions post the Federal Reserve's December meeting and the steady rise in real personal income growth in recent months are key factors bolstering this optimistic outlook.

Fannie Mae now anticipates a modest 1.1% expansion in 2024, a significant upgrade from the previously forecasted 0.3% Q4/Q4 contraction in real GDP. However, it's important to note that risks still loom on the horizon, including mixed signals in the labor market, recent spikes in shipping rates, and potential inflationary pressures.

"Our baseline forecast shows inflation gravitating towards the Fed's 2% target throughout the year, yet we remain vigilant of the risks that persist," adds the ESR group.

As we navigate through these changing times, Fannie Mae's latest forecast offers a glimmer of hope and stability for the housing market. The anticipated drop in mortgage rates and the gradual balancing of the market present opportunities for both current homeowners and those aspiring to join their ranks. Here's to a future where dreams of homeownership are more attainable than ever.

I hope you have found this blog post super helpful. If there is anything else we can do for you, including helping you sell (or buy) a home, I would be honored to assist. I hope you have a great day/evening. Cheers, E + J.

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