Higher Rate Environment Projected to Dampen Housing Activity Through 2024

Rhea-AI Summary

The Fannie Mae Economic and Strategic Research (ESR) Group projects a modest slowdown in housing activity through 2024 due to sustained high mortgage rates, expected to hover around 7% by year-end. However, a sharp decline in home sales is unlikely as active listings have increased by 30% year-over-year.

Despite unchanged GDP growth forecasts at 1.8% for 2024, household income growth lags behind consumer spending, suggesting future consumption may decline. Inflation is expected to decelerate, preventing a Federal Reserve rate hike until September. The ESR Group forecasts a gradual improvement in home sales but notes that a significant change is unlikely until mortgage rates decrease, potentially in 2025.

Positive

• Active home sale listings are up 30% year-over-year.
• GDP growth forecast for 2024 remains steady at 1.8%.
• Mortgage rates are expected to trend downward in 2025.
• The ESR Group predicts a modest upward drift in existing home sales compared to previous low levels.

Negative

• Housing activity is projected to slow modestly through 2024.
• Mortgage rates are expected to remain near 7% through the end of the year.
• Household income growth has not kept pace with consumer spending.
• High personal outlays on debt interest suggest a future decline in consumption.
• Inflation is expected to remain sticky, preventing a Federal Reserve rate hike until September.

However, Sharp Decline in Sales Activity Unlikely as Home Listings Surge

WASHINGTON, May 21, 2024 /PRNewswire/ -- Housing activity is expected to slow modestly compared to previous projections, if the broad upward movement in mortgage rates since the start of the year is sustained, according to the May 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. 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.

The ESR Group forecasts overall economic growth to slow and mortgage rates to end the year near 7 percent. As a result, they expect a slight slowdown in housing activity through 2024 compared to their previous forecast. However, with active home sale listings now up approximately 30 percent 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 ESR Group's full-year 2024 real GDP outlook is unchanged at 1.8 percent, as underlying growth in the first quarter remained solid but still appears on track to slow as the year progresses. Household income growth has not kept pace with strong consumer spending and personal outlays on debt interest remain high, suggesting to the ESR Group that the higher interest rate environment will eventually weigh on future consumption. Combined with potential softening in payroll employment growth, the ESR Group expects inflation to decelerate through 2024 but remain sticky enough in the near term to prevent a Federal Reserve rate hike until September.

"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 Senior Vice President and Chief Economist. "For now, we see rates remaining closer to 7 percent 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."

Visit the Economic & Strategic Research site at fanniemae.com to read the full May 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, beliefs, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group or survey respondents 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, beliefs, 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, beliefs, and other views published by the ESR Group represent the views of that group or survey respondents 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: fanniemae.com | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog

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SOURCE Fannie Mae

FAQ

What is the forecast for housing activity in 2024?

The Fannie Mae ESR Group projects a modest slowdown in housing activity through 2024 due to sustained high mortgage rates.

How much are mortgage rates expected to be by the end of 2024?

Mortgage rates are expected to be near 7% by the end of 2024.

Will there be a sharp decline in home sales according to Fannie Mae?

No, a sharp decline in home sales is unlikely as active listings have surged by 30% year-over-year.

What is the GDP growth forecast for 2024 by Fannie Mae?

The GDP growth forecast for 2024 remains unchanged at 1.8%.

When is the Federal Reserve expected to raise rates according to the ESR Group?

The ESR Group does not expect a Federal Reserve rate hike until September 2024 due to sticky inflation.

What factors could lead to an improvement in housing affordability?

A downward movement in mortgage rates is seen as the likeliest factor to improve housing affordability.