Signs of recovery amid economic caution
Fannie Mae’s Economic and Strategic Research (ESR) Group has shared an optimistic yet cautious forecast for the single-family home sales market in 2024.
The group expects a slow but meaningful recovery following a slump in the final quarter of 2023, reaching the lowest sales levels since the Great Financial Crisis. This prediction comes in the wake of a decrease in mortgage rates, which has already led to a 15% increase in purchase mortgage applications from their lowest point in November.
The ESR Group, however, tempers this optimism with a note of caution. Factors contributing to the 2023 downturn, such as affordability challenges, homeowners reluctant to sell due to higher rates (the ‘lock-in effect’), and a scarce housing inventory, are likely to continue into 2024.
“Notwithstanding the recent mortgage rate rally, housing and mortgage markets will enter 2024 at approximately the same level as they entered 2023,” Fannie Mae chief economist Doug Duncan said in the report. “Therefore, while we expect home sales to begin increasing in the new year, the combination of modestly rising home prices and still-high interest rates suggest that the recovery will be slow from the low levels of housing activity seen recently.”
The group’s broader economic forecast remains mixed. They predict a slight downturn in 2024, followed by a resurgence in 2025. These projections are influenced by the same business cycle dynamics that played a role in last year’s recessionary trends.
“Last week’s comments by chairman Powell, as well as the Federal Reserve’s updated Summary of Economic Projections, suggest increased Fed confidence that a soft landing has been achieved and inflation is headed sustainably to 2%,” Duncan said.
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Duncan acknowledged that many economic forecasts, including Fannie Mae’s, which predicted a recession in 2023, were incorrect. Despite this, he expressed ongoing concerns.
“We continue to think there are reasons for concern that will likely lead to a mild economic downturn, including stretched consumer spending relative to personal incomes and the continued effects of restrictive monetary policy still working through the economy,” he added.
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