Rate decline expected to stimulate home sales and volume
The housing market is set for a steady recovery in 2024, moving towards a more normal balance after years of fluctuating mortgage rates and deviations from pre-pandemic trends.
This outlook comes from the Economic and Strategic Research (ESR) Group at Fannie Mae, which anticipates a decrease in mortgage rates and an end to the year below 6%.
According to the ESR Group’s January 2024 commentary, refinancing volumes, already showing signs of increase, are expected to nearly double from 2023 levels due to the anticipated lower rates. This change is also projected to alleviate the “lock-in effect” currently impacting the existing home sales market.
The ESR Group anticipates the annualized pace of existing home sales to rise to 4.5 million units by Q4 2024, a notable increase from 3.8 million in 2023.
“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 chief economist Doug Duncan said in the report. “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.”
Nevertheless, Duncan cautioned that rates still have a significant way to go to substantially mitigate the lock-in effect experienced during the pandemic.
Despite these positive signs, the ESR Group warned that reaching pre-pandemic sales rates could take several years, given the ongoing affordability issues and supply constraints. However, these same constraints in the existing homes market will likely boost new single-family home constructions, with both starts and new home sales projected to exceed 2023 figures.
Read more: US housing starts rise to a six-month high
The ESR Group’s forecast also predicted home price growth moderation in 2024, with an expected increase of 3.2% over the year, a slowdown from the 7.1% rise in 2023.
Additionally, the ESR Group has updated its economic growth predictions for 2024. Initially anticipating a modest recession, the group now foresees positive, albeit below-trend, growth. This revised outlook followed the Federal Reserve’s December meeting and recent improvements in financial conditions and real personal income growth. However, the forecast is not without its uncertainties and risks, including a higher-than-usual likelihood of a recession.
But overall, the group “expects 2024 to be a better year than 2023 for homebuyer affordability and the mortgage industry.”
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