BAM Key Details: 

  • A new Fannie Mae report offers a more bullish revision on its projections for mortgage rates in 2024. 
  • Given the continued resilience of the U.S. economy, including the low unemployment rate, Fannie Mae has removed its expectation of a recession for 2024 while still acknowledging an elevated risk. 

Fannie Mae has released its updated forecast for the 2024 housing market, with mortgage rates dipping below 6% in the fourth quarter. 

The year 2023 was a mixed bag, with volatile mortgage rates, depressed mortgage originations, and record lows in inventory, along with solid growth in home prices and new home construction. 

Fannie Mae economists now expect housing and mortgage markets to stabilize in 2024, relative to the turbulence of the past several years. While its projection has the Fed starting rate cuts no earlier than May, a recession is no longer includes as part of its baseline forecast for the year. 

It does expect many of the challenging dynamics of 2023—limited housing affordability, limited inventory, and the lock-in effect—to continue in 2024. 

But it also sees some recovery in existing home sales, along with moderating home price appreciation and a more stable level of new home construction. 

Mortgage rates expected to trend closer to normal in 2024

While no one sees a return to 2.5–3% mortgage rates anytime soon, Fannie Mae economists do expect rates to trend closer to more normal levels this year, with a dip below 6% in the final quarter. 

Fannie-Mae-Interest-rates-have-fallen-sharply-Jan-2024

Source: Fannie Mae

December’s FOMC meeting marked what many are interpreting as a “pivot” toward a more neutral monetary policy. Given that interpretation, futures markets are pricing in 125-150 basis points (bps) of fed rate cuts by the end of 2024, while Fannie Mae’s current forecast includes a 100 basis point drop this year. 

The 10-year Treasury Yield has dropped roughly 100 bps from its peak last October, and the 30-year fixed has followed, dropping to 6.60% as of January 18th according to Freddie Mac’s weekly averages. 

So, while Fannie Mae economists project a more modest decline in the federal funds rate this year, their outlook for both the 10-year Treasury and the 30-year fixed mortgage rates are lower than what they had previously forecast for 2024. 

Fannie-Mae-mortgage-rates-Jan-2024

Source: Fannie Mae

Existing home sales will begin to thaw

According to Fannie Mae’s updated forecast, affordability challenges will remain this year, along with a limited supply of for-sale inventory. But economists do expect the easing in mortgage rates to stimulate the existing home sales market that, for much of 2023, was suppressed by a strong lock-in effect as around 80% of homeowners had much lower mortgage rates. 

In 2020 and 2021, many homebuyers and sellers alike probably sped up their plans to buy or sell to take advantage of historically low mortgage rates and the increase in remote work options. Fast forward to 2023 and there were fewer homeowners intending to move. 

As time passes, though, Fannie Mae expects more homeowners who delayed moving in 2023 due to higher mortgage rates to take advantage of falling rates, causing an increase in home sales this year. 

While we are still anticipating a comparatively sluggish pace of existing home sales, as affordability and a lack of supply remain challenges to the market, we are forecasting successive quarterly sales increases in 2024 with sales ending the year around 4.5 million annualized units in Q4 compared to the year low of around 3.8 million annualized units in Q4 2023. For the year, we forecast existing sales to rise 3.1 percent in 2024.

Fannie Mae’s Economic Developments – January 2024

Fannie-Mae-Existing-home-sales-Jan-2024

Source: Fannie Mae

New home sales

In November 2023, new single-family home sales dropped 12.2% to a seasonally adjusted annualized rate of 599,000. 

That said, the lower projected path for mortgage rates, combined with Fannie Mae’s removal of a recession from their baseline forecast, led them to upgrade their forecast for new home sales, especially since this measure is historically more sensitive to changes in the economy. 

The forecast revision is proportionally large relative to the change in Fannie Mae’s existing home sales forecast. 

Fannie-Mae-New-single-family-home-sales-Jan-2024

Source: Fannie Mae

Strong single-family construction with a continued (relative) pause for multifamily

As of November 2023, single-family housing starts increased to a seasonally adjusted annualized rate (SAAR) of 1.14 million, which is likely not sustainable given incoming data on permits. 

The latter, which tends to be a less volatile indicator, came in at a lower SAAR of 977,000. 

While Fannie Mae economists expect a near-term drop in housing starts, they’ve revised upward their forecast for the year, given the lower projected path for interest rates and the removal of their recession call. 

They continue to expect the shortage of existing homes for sale to drive growth in new home construction. 

Fannie-Mae-Single-family-housing-starts-Jan-2024

Source: Fannie Mae

As of November 2023, multifamily housing starts increased to a seasonally adjusted annualized rate (SAAR) of 417,000, while multifamily permits dropped to a SAAR of 490,000. 

Fannie Mae’s updated forecast includes a slight upgrade for multifamily housing starts based on incoming data, while soft rent growth and an increase in supply deliveries are keeping the forecast for these numbers muted. 

Their revised forecast for mortgage rates, coupled with their overall macroeconomic outlook for 2024, contributed to the slight upgrade in Fannie Mae’s earlier projections for multifamily starts, but they’re still forecasting an annual decline of 18.3% in 2024 from 2023. 

Fannie-Mae-Multifamily-housing-starts-Jan-2024

Source: Fannie Mae

Single-family home prices

According to the most recently published non-seasonally adjusted Fannie Mae Home Price Index (HPI), home prices increased 7.1% from Q4 2022 to Q4 2023—more than previously forecasted. 

Taking that into account, along with their revised outlook on mortgage rates and macroeconomic conditions, Fannie Mae has revised upward its forecast for single-family home price growth in 2024. 

Fannie-Mae-Single-family-HPI-Jan-2024

Source: Fannie Mae

Single-family mortgage originations

Fannie Mae’s updated forecast includes steady growth in single-family mortgage originations, including an uptick in the refinance segment. 

They’re now forecasting 2024 total single-family mortgage originations to reach $1.98 trillion in 2024 and $2.44 trillion in 2025—up from $1.50 trillion in 2023. 

Fannie-Mae-Single-family-mortgage-originations-Jan-2024

Source: Fannie Mae

Read the full report for more information.