Fannie Mae, a key player in the mortgage industry, has recently released its comprehensive housing market forecasts, offering insights into the trajectory of home sales and price growth through the years 2024 and 2025. Let’s delve into the details of Fannie Mae’s projections and the factors influencing the housing market.
Overview of Fannie Mae’s Forecasts
Fannie Mae anticipates that lower borrowing costs will provide a boost to housing market activity. However, the forecast suggests that home sales will only experience marginal growth, with total home sales in 2024 expected to be approximately 4.8 million, relatively flat compared to the current year. A more significant jump is projected for 2025, with sales reaching 5.4 million.
The drivers of slow sales, as highlighted by Fannie Mae, include unaffordability, lock-in effects, and a lack of existing inventories that continue to impede the housing market. Despite the expectation that these challenges will gradually diminish over time, they are anticipated to remain obstacles in 2024.
Recovery in Existing Home Sales
Existing home sales are expected to undergo a slow recovery starting in the next year, following a likely low point in October. The report indicates a seasonally adjusted annualized rate of 3.79 million during this period. The recovery is attributed to various factors, including a shift in monetary policy leading to a drop in mortgage rates.
On the other hand, new home sales are forecasted to decline slightly in 2024 due to a modest economic contraction. The housing shortage and builders’ willingness to provide mortgage buydowns have contributed to the continued benefits for new home sales.
Limitations on Mortgage Rate Decline
Fannie Mae notes a limit to how far mortgage rates will fall despite the recent drop spurred by a shift in monetary policy. The projection indicates that the 30-year fixed rate will average 6.7% in 2024, with a further decline to 6.2% in 2025. This is a significant decrease from the current level, which is just below 7%, after rates soared close to 8% earlier in the year.
Although the recent pullback in mortgage rates suggests an incoming rebound in sales, Fannie Mae emphasizes that rates, even with recent declines, are currently similar to those of the summer of the current year.
Price Appreciation and Mortgage Originations
Despite the expectation of continued price appreciation and growing refinancing activity, Fannie Mae doesn’t foresee the momentum of 2023 carrying over into the coming years. Home price growth is projected to reach 2.4% and 2.7% in 2024 and 2025, respectively, after surging an estimated 5.9% in the current year.
Fannie Mae anticipates that price appreciation and growing refinancing activity will boost single-family mortgage originations. The forecast indicates an increase from $1.5 trillion to $1.9 trillion in 2024 and a further rise to $2.3 trillion in 2025.
Construction Outlook
Fannie Mae’s assessment of new construction indicates that an economic slowdown is likely to extend into 2024. However, it is expected to provide only a temporary setback to housing starts. Low interest rates are anticipated to help single-family starts jump through 2025, while multifamily starts may level off due to existing inventory and expectations of muted rent growth.
Single-Family Home Prices and Mortgage Originations
As of September, single-family home prices grew by 6.0% compared to the previous year, according to the FHFA Purchase-Only House Price Index. Fannie Mae’s Home Price Index (HPI) forecast, last updated in October, will be revisited in January for the latest projections.
Regarding mortgage originations, Fannie Mae has upgraded its forecast for purchase mortgage origination volumes, expecting growth to $1.4 trillion in 2024 and reaching $1.6 trillion in 2025. Refinance volumes are also projected to increase, with expectations of reaching $451 billion in 2024 and growing to $686 billion in 2025.
Overall, Fannie Mae’s housing market forecasts for the next two years offer a detailed analysis of the factors influencing home sales, price growth, and construction activity. While challenges such as unaffordability and inventory constraints persist, the forecast suggests a gradual recovery in existing home sales and continued benefits for new home sales. The dynamics of mortgage rates, price appreciation, and refinancing activity also play a crucial role in shaping the outlook for the housing market in 2024 and 2025.
