Increased home sale activity will depend on millions of homeowners giving up their 3% rates, Fannie Mae economists say
The U.S. economy appears to be on firmer footing than previously thought, mortgage rates are forecast to end 2024 at 6% and home-price growth is also on the move.
These are conclusions drawn by economists at Fannie Mae‘s Economic and Strategic Research (ESR) Group. They’re now projecting gross domestic product (GDP) growth to fall from 3.2% in 2023 to 2.3% in 2024 and 2% in 2025. In June, the ESR Group projected GDP growth of 1.6% in 2024 and 1.9% in 2025.
“The improved economic outlook stems in large part from significant upward revisions to recent personal income data,” economists said in a statement Thursday. “Previously, the ESR Group expected consumption growth to retrench, as it had grown unsustainably relative to incomes, but revised data now show the relationship between income and consumption to be closer to historical levels.
“As such, the ESR Group believes the economy can maintain growth closer to its long-run potential through its forecast horizon, barring an unforeseen shock to consumer or business confidence from an adverse exogenous event.”
Following data revisions and recent employment data, bond market expectations for rate cuts have moved into closer alignment with the dot plot from the Federal Reserve’s latest Summary of Economic Projections. This has caused the 10-year Treasury to rise more than 40 basis points from its low point in mid-September.
“This represents upside risk to the ESR Group’s latest mortgage rate forecast, which now sees the 30-year mortgage rate ending the year at 6.0%, down from last month’s 6.2% projection, and to decline steadily to 5.7% by the end of 2025.”
Meanwhile, the ESR Group expects annual home-price growth of 5.8% in 2024 and 3.6% in 2025, slight adjustments to their previous forecasts of 6.1% and 3%, respectively.
“While potential homebuyers have noticed the decline in mortgage rates over the last few months, they are equally aware that there has been little relief on the home price side, the other primary driver of unaffordability, particularly for first-time buyers,” Mark Palim, Fannie Mae’s chief economist, said in a statement.
“The timing of the long-expected pick-up in home sales activity, as well as a further moderation in home price appreciation, will depend in part on the willingness of current homeowners to relinquish their low mortgage rates by offering their homes for sale. Of course, continued strong homebuilding activity will also play a significant role as the shortage of national housing stock remains the primary impediment to affordability.”
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