Thu, 18 January 2024 | housing
According to the January 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group, the housing market is anticipated to gradually return to a more normal balance in 2024, following years of significant oscillations in mortgage rates and divergences of key housing market measures from their historical, pre-pandemic relationships.
According to the ESR Group, mortgage rates will drop in 2024 and finish the year at less than 6%. Refinance volumes are predicted to nearly double from their 2023 levels in 2024 due to the reduced interest rate environment. These volumes are already on the rise, as seen by the most recent increase in Fannie Mae's Refinance Application-Level Index. Additionally, lower rates should assist "thaw" the present house sales market, which is being negatively impacted by the "lock-in effect." Indeed, by the fourth quarter of 2024, the yearly rate of existing home sales is expected to increase to 4.5 million units, up from 3.8 million in the fourth quarter of 2023, according to the ESR Group. It is anticipated that years would pass before the sales rate fully recovers to its pre-pandemic level, given housing affordability is still relatively low in comparison to household earnings, even by historical norms.
With 2024 starts and new house sales predicted to surpass 2023 levels, the market for new single-family homes is predicted to continue to be supported by the persistent shortage of supply and affordability restrictions in the existing home market. Overall, though, the ESR Group anticipates that in 2024, the gradually stabilizing existing-homes market and the increased housing supply resulting from new home building would help restrain further increases in home prices: As opposed to 7.1 percent in 2023, home prices are now predicted to increase by 3.2 percent this year.
In contrast to earlier forecasts, the ESR Group's most recent estimate for 2024 predicts positive-but-below-trend growth rather than a small recession, however it nonetheless calls for a slowing in economic growth in that year. The Federal Reserve's December meeting and the swift recent loosening of financial conditions, as well as the steady increase in real personal income growth in October and November, are seen by the ESR Group as encouraging signs for the upcoming quarters. The ESR Group insists that the economy still faces a higher-than-normal chance of recession, but emphasizes that the current estimate involves increased uncertainty and severe downside risks.
Doug Duncan, senior vice president and chief economist at Fannie Mae, stated, "We expect home sales and mortgage origination activity to begin a gradual recovery in 2024 in the presence of a slow-growing economy." The Fed's decision to signal further rate decreases in response to the decline in inflation makes us think that home sales and mortgage originations probably peaked in the second half of 2023 and are now starting to gradually improve. By the end of 2024, we anticipate that mortgage rates will fall below 6%, and homebuilders will keep producing new homes, which will help with affordability. Along with some increase in purchase finance, the drop in mortgage rates is also expected to drive up refinancing volumes. In our opinion, rates will still need to be raised significantly in order to significantly lessen the "lock-in effect" that homeowners who refinanced or purchased during the pandemic faced. This is even with rates less than 6%. In general, we anticipate that both the mortgage market and homebuyer affordability will fare better in 2024 than they did in 2023."