BAM Key Details:   

  • Fannie Mae’s Economic and Strategic Research (ESR) Group released its revised forecast on May 19th. The group expects the U.S. to enter a mild recession later this year.
  • ESR Group forecasts a -1.2% decline in home prices in 2023 and a -2.2% decline in home prices in 2024. 
  • The forecast also expects mortgage rates to decrease—to around 6% by the end of 2023 and 5.4% by the end of 2024.

Fannie Mae’s Economic and Strategic Research (ESR) Group released its May 2023 housing forecast with revised predictions for the housing industry. 

A modest recession is likely to occur this year, although the exact timing is difficult to pinpoint. And while the housing market is expected to help pull the economy out of recession, the ESR Group expects to see a slight decline in home prices through 2024.

There are select data available to support several alternative views of the path of the economy, though we maintain our view that a modest recession will begin in the second half of 2023. Housing remains exhibit number one for why we expect the recession to be modest. It continues to outperform our expectations, and we expect that its relative strength will help kickstart the economy into expanding again in 2024.

Doug Duncan

Senior Vice President and Chief Economist, Fannie Mae

Before we dive into Fannie Mae’s revised forecasts for housing prices and mortgage rates, let’s look at home sales and housing starts. 

Home Sales and Housing Starts

A decline in existing home sales has been observed this year due to affordability constraints and a limited supply of homes for sale. A lack of housing inventory is a challenge that started before the pandemic, and is currently being exacerbated by the “lock-in effect.” Homeowners, reluctant to give up low mortgage rates, are opting to stay put rather than sell their homes. 

Because of this, more demand has shifted further toward new home construction. The ESR Group forecasts an increase of single-family starts by 4.5% in 2024 after a -18.9% decrease in 2023. While an increase in single-family homes would be a positive for the housing market, builders are facing regulatory fees that make building affordable homes nearly impossible. 

Multifamily starts, on the other hand, are expected to see a significant slowdown later this year, “due to tightening credit conditions, slower rent growth and higher vacancy rates.” The ESR group expects multifamily starts to see a -12.6% decrease in 2023, followed by a -17.7% decrease in 2024. 

Fannie Mae’s Home Price Forecast

Fannie Mae revised its quarterly year-over-year Home Price Index (HPI) through the end of 2024. 

The Group expects 2023 to end the year with a -1.2% decrease in home prices, even after a 4.7% increase in the first quarter. 

  • 2023 Quarter 2:  -0.1% decrease YoY
  • 2023 Quarter 3: -0.8% decrease YoY
  • 2023 Quarter 4: -1.2% decrease YoY

Heading into 2024, ESR Group expects more decline in home prices:

  • 2024 Quarter 1: -2.5% decrease YoY
  • 2024 Quarter 2: -2.6% decrease YoY
  • 2024 Quarter 3: -2.2% decrease YoY
  • 2024 Quarter 4: -2.2% decrease YoY

Byron Lazine revealed these stats on Monday’s Hot Sheet (the industry’s only live housing show, airing every day the markets are open):

Agents were quick to chime in, stating they don’t see home prices falling in their markets—at least not without a significant increase in inventory. 

It’s important to note that not all housing economists are on the same page about home prices. While Fannie Mae is forecasting a slight decrease (not a crash), CoreLogic and Zillow’s latest home price forecasts expect home prices to increase over the next year. 

Head to BAM Instagram to let us know what you are seeing in your market.  

Fannie Mae’s Mortgage Rate Forecast

While mortgage rates over the past year have been volatile (especially this week, as we wait for an agreement on the U.S. debt ceiling), Fannie Mae’s ESR Group is forecasting continued declines in rates over the next seven quarters:

  • 2023 Quarter 2– 6.4%
  • 2023 Quarter 3– 6.2%
  • 2023 Quarter 4– 6.0%
  • 2024 Quarter 1– 5.8%
  • 2024 Quarter 2– 5.6%
  • 2024 Quarter 3– 5.5%
  • 2024 Quarter 4– 5.4%

A steady decrease in mortgage rates would certainly be welcomed by buyers grappling with affordability issues—and it may even sway some homeowners on the fence to list their properties for sale. 

Final Takeaways

The majority of local markets have seen a rise in multiple offers and over-ask bids this spring, making it hard to imagine that home prices will decline this year, especially as inventory remains an issue. 

Keep in mind that 2022 was a year of two markets—and 2023 may be a repeat of that, with the final two quarters seeing a slowdown in activity. In addition, while Fannie Mae projects a slight decline in home prices, other housing economists, including CoreLogic and Zillow, expect home price increases. 

This all points to the fact that housing trends are highly localized right now. Continue to stay educated on a national level, and dive into your local market statistics on a regular basis. When you are armed with all that data, you are better equipped to educate your clients on what moves they can make.