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The continued strength of the U.S. economy could provide an additional boost to 2024 home sales, but that might come at the expense of slightly slower sales growth next year due to stubbornly higher mortgage rates, Fannie Mae forecasters said Friday.
Fannie Mae now expects sales of new and existing homes to grow by 5.0 percent this year, to 4.996 million homes, and by another 10.9 percent next year, to 5.543 million units.
Last month, forecasters at the mortgage giant were predicting 3.7 percent growth in 2024 home sales followed by 12.6 percent growth in 2025.
Either way, 2024 and 2025 home sales would total about 10.5 million. But the latest forecast calls for 32,000 more 2024 sales than previously forecast in January, and 48,000 fewer 2025 sales.
“We have revised our forecast modestly upward in 2024, mostly due to higher growth expectations, while we have lowered our expectations in 2025, largely due to the slightly higher projected interest rate environment,” Fannie Mae economists said in commentary accompanying their latest forecast.
Strong economy could slow decline in mortgage rates
Source: Fannie Mae and Mortgage Bankers Association projections, February 2024.
While Fannie Mae economists say they still expect mortgage rates to retreat below 6 percent this year, they don’t see as much room for additional declines in 2025.
Last month Fannie Mae forecasters projected rates on 30-year fixed-rate mortgages would average 5.8 percent during the fourth quarter of this year, and drop to 5.5 percent during Q4 2025. The latest forecast envisions rates dropping to an average of 5.9 percent during Q4 2024 and to 5.7 percent during Q4 2025.
Doug Duncan
“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,” Fannie Mae Chief Economist Doug Duncan said, in a statement. “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.”
In a Feb. 20 forecast, economists at the Mortgage Bankers Association projected mortgage rates won’t drop below 6 percent this year, but will then fall more steeply next year, to an average of 5.5 percent in Q4 2025.
Lock-in effect limiting existing home sales
Source: Fannie Mae Housing Forecast, February 2024.
With the “lock-in effect” and other factors continuing to limit the supply of existing homes on the market, Fannie Mae economists expect homebuilders will continue a push to meet homebuyer demand, with new single-family home starts projected to grow by 7.4 percent in 2024, to 1.01 million.
While Fannie Mae forecasters expect sales of existing homes to grow by 4.2 percent in 2024, to 4.26 million, new home sales are projected to grow at more than double that pace, surging by 9.9 percent to 734,000.
Fannie Mae expects the trend to reverse next year, when sales of existing homes are projected to grow by 12.1 percent, to 4.78 million, and new home sales growth is projected to cool to 4.2 percent, producing 765,000 new home sales.
Double-digit growth in refinancing projected
Source: Fannie Mae Housing Forecast, February 2024.
Weaker-than-expected incoming data on the average price of new home sales led Fannie Mae economists to downgrade their forecast for 2024 purchase mortgage originations by $30 billion, and to knock $4 billion off their previous estimate for 2025 purchase loan volume.
Purchase loan volume is still expected to grow by 16.7 percent this year, to $1.46 trilllion, with another 13.2 percent bump expected next year, to $1.65 trillion.
Lower interest rates are expected to generate double-digit growth in refinancing volume, which contracted dramatically in 2022 and 2023 as mortgage rates soared. Refi volume is projected to grow by 81.4 percent this year, to $459 billion, and by another 54.5 percent in 2025, to $709 billion.
That would still represent less than one-third of the $2.67 trillion in mortgages that were refinanced in 2021.
Annual home price appreciation projected to cool
Source: Fannie Mae Housing Forecast, January 2024.
Fannie Mae economists said in January that they expect annual home price appreciation to cool this year, dropping to 3.2 percent by Q4. By Q4 2025, Fannie Mae projects annual home price appreciation will essentially be flat, at 0.3 percent.
Fannie Mae updates its home price appreciation forecasts on a quarterly basis, with the next update scheduled for April.
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