Higher Mortgage Rate Forecast Leads to Decline in 2024 Home Sales Expectations

Rhea-AI Summary

Fannie Mae's Economic and Strategic Research Group predicts higher mortgage rates for 2024 due to increased inflation data, impacting home sales and mortgage originations. The 30-year fixed mortgage rate is forecasted to reach 6.4 percent by year-end, up from the previous 5.9 percent prediction. Despite mixed labor market indicators, the Federal Reserve is expected to maintain a less aggressive rate-cutting path. However, existing home sales are projected to rise, supported by new home listings and positive sentiment in the housing market.

Positive

• None.

Negative

• Higher mortgage rates may deter potential homebuyers, impacting the overall housing market activity negatively.
• Increased inflation could lead to higher borrowing costs for consumers, affecting their purchasing power and affordability.
• The uncertainty surrounding future monetary policy changes may create volatility in the mortgage market, potentially deterring investors.
• supply of homes for sale coupled with elevated interest rates may lead to a slowdown in the housing market growth compared to previous years.

Recent Inflation Data Likely to Keep Mortgage Rates 'Higher for Longer' than Previously Forecast

WASHINGTON, March 19, 2024 /PRNewswire/ -- The increase in mortgage rates in February has driven a modest downgrade to expectations for total home sales and mortgage originations in 2024, according to the March 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. The ESR Group now expects the 30-year fixed mortgage rate to end the year at 6.4 percent, up from the 5.9 percent predicted in last month's forecast. Strong headline jobs numbers and hotter-than-expected inflation data had led financial markets to price in a less aggressive rate-cutting path by the Federal Reserve, and while the ESR Group notes that labor market indicators are mixed and disinflation will likely resume, it also believes that recent data are unlikely to provide the Fed with the "greater confidence" it needs to begin easing monetary policy in the near term. Still, the ESR Group expects existing home sales will trend upwards in 2024 due in part to increased activity by households likely needing to move due to life events – and who are thus less sensitive to the interest rate lock-in effect. The ESR Group cited the recent trend upward in new home listings, as well as comparative strength in the latest reading of the 'good time to sell' component of the Fannie Mae Home Purchase Sentiment Index^®, as evidence that housing market activity is likely to continue its gradual thaw in the months and quarters ahead.

"The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024," said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. "Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we'd previously forecast, as markets continue to evolve their expectations of future monetary policy. Still, while we don't expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 -- even if mortgage rates remain elevated."

Visit the Economic & Strategic Research site at fanniemae.com to read the full March 2024 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management. 

About the ESR Group
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Doug Duncan, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets. The ESR Group was awarded the prestigious 2022 Lawrence R. Klein Award for Blue Chip Forecast Accuracy based on the accuracy of its macroeconomic forecasts published over the 4-year period from 2018 to 2021.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit:
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SOURCE Fannie Mae

FAQ

What is the forecasted 30-year fixed mortgage rate for 2024 according to Fannie Mae's Economic and Strategic Research Group?

Fannie Mae's ESR Group predicts the 30-year fixed mortgage rate to end the year at 6.4 percent, up from the previous forecast of 5.9 percent.

How will the recent inflation data impact mortgage rates for 2024?

Increased inflation data is likely to keep mortgage rates higher for longer in 2024, affecting total home sales and mortgage originations.

What factors are contributing to the rise in existing home sales according to Fannie Mae?

Fannie Mae attributes the expected increase in existing home sales to factors such as new home listings and positive sentiment in the housing market.

Who is the Senior Vice President and Chief Economist at Fannie Mae?

Doug Duncan is the Senior Vice President and Chief Economist at Fannie Mae, providing insights into the housing market trends.