According to Fannie Mae’s Economic and Strategic Research Group (ESR), housing activity is now expected to slow modestly compared to previous ESR predictions—if the broad upward movement in mortgage rates since the beginning of the calendar year are sustained a slowing housing market may become a reality.
However, the ESR Group notes upside risk to its latest forecasts for housing starts, single-family mortgage originations, and home sales activity, particularly if upcoming data releases lead market participants to believe that the Federal Reserve is closer to easing monetary policy, which would likely push mortgage rates downward.
Overall, the ESR Group forecasts broader economic growth to slow and mortgage rates to end the year around the 7% mark. This will result in a slight slowdown in housing activity throughout 2024 compared to the ESR’s previous forecast.
However, with active home sale listings now up approximately 30% compared to a year ago, the ESR Group believes sizable declines in home sales are unlikely and continues to forecast a modest upward drift in existing home sales over the forecast horizon, particularly compared to the historically low sales levels of the previous two years.
The good news is that the ESR Group’s full-year GDP outlook is unchanged at 1.8%, as underlying growth in the fourth quarter remained solid, but still appears on track to slow as the year progresses.
“The question our economics team is asked most frequently by industry participants remains where we think mortgage rates are headed,” said Doug Duncan, Fannie Mae’s SVP and Chief Economist. “For now, we see rates remaining closer to 7% through the end of the year—before trending downward in 2025—but note potential downside to that forecast given recent actual movements in rates. Our consumer survey suggests that households who are paying attention to the housing market continue to take a wait-and-see approach. This is consistent with our latest housing forecast, which does not foresee a dramatic change in activity until affordability improves. Given ongoing supply constraints and recent indications that the labor market may be weakening, a downward movement in mortgage rates appears to be the likeliest lever to achieve an improvement in affordability.”
Click here to read the full May 2024 outlook from the ESR Group.
