WASHINGTON—Existing home sales and new single-family housing starts are expected to grow modestly in 2024 amid lower mortgage rates and slowly strengthening homebuyer sentiment, according to the February 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
While housing affordability is still seriously constrained following the home price run-up of the past few years, the supply of existing homes available for sale is “finally showing signs of loosening,” Fannie Mae stated.
“Additionally, more households have recently signaled that they expect mortgage rates to decline, as evidenced by Fannie Mae’s January 2024 Home Purchase Sentiment Index, a newfound optimism that may signal an increased openness to moving,” Fannie Mae said.
The Rate Forecast
The ESR Group’s latest forecast sees mortgage rates falling to 5.9% by the end of 2024 and 5.7% by the end of 2025, both slight upticks compared to last month’s forecast. Additionally, it expects single-family starts to trend upward in 2024 despite the pullback this past month, as permits have increased for twelve consecutive months and demand for new homes remains robust.
The ESR Group said it has upgraded its 2024 macroeconomic growth outlook due to a stronger-than-expected Q4 2023 gross domestic product (GDP) report, as well as incoming data on recent population growth and immigration trends that point to faster payroll and GDP growth over the forecast horizon.
“Still, the ESR Group continues to expect a slower pace of economic growth in 2024 compared to 2023. An unsustainably low savings rate suggests softer consumer spending going forward, consistent with the pullback in January retail sales, and slowing local and state tax receipts point to slower direct government spending growth,” Fannie Mae said. “Further, while payroll growth looks to have reaccelerated in December and January, other labor market measures indicate softness, including the household survey and the quits rate.”
On net, said Fannie Mae, all of that suggests to the ESR Group that the labor market is likely to cool in the near future.
‘Significant Uncertainty’
“Market dynamics continue to reflect significant uncertainty regarding the sustainability of stronger-than-expected recent GDP growth, the continuity of the decline of inflation, and the path of monetary policy change, not to mention the many ways in which historical relationships in housing and the larger economy remain out of balance post-pandemic,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “Right now, our base case scenario foresees economic growth decelerating, rates gradually declining, and new single-family home sales slowly recovering as construction adds supply. However, if economic growth continues to surprise to the upside, then we believe the risk of mortgage rates remaining higher for longer will also increase.”
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