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| Higher Mortgage Rates Predicted to Impact Housing Affordability in 2024, Says Fannie Mae |
Soaring interest rates and a higher-for-longer policy will take its toll on the economy, according to Fannie Mae’s Economic and Strategic Research (ESR) group.
Fannie Mae's ESR Group: Higher Mortgage Rates to Challenge Housing Affordability in 2024
The recent surge in long-term rates is attributed to multiple factors, including expectations of more robust economic growth and the Federal Reserve's commitment to a higher-for-longer monetary policy stance.
Fannie Mae Predicts Mortgage Rates' Impact on Housing Affordability
Starting in July, the 10-year treasury yield stood at approximately 3.8%. Just three months later, rates had increased by a full percentage point, reaching a peak of 4.91% on October 18.
Interest Rate Trends and Their Effect on the Real Estate Market
Due to this recent spike in long-term rates, Fannie Mae does not anticipate further rate hikes. Doug Duncan, Fannie Mae’s Senior Vice President and Chief Economist, suggests that the Federal Reserve might pause on rate hikes, given that real rates, when adjusted for inflation, are around 2%.
Federal Reserve's Stance on Rate Hikes and Economic Resilience
Fannie Mae notes that the economy appears to face fewer structural challenges than previously assumed, thanks to updates in national accounts data that reveal a better balance between real consumption and incomes.
Economic Stability and Consumer Spending
Inflation remains elevated, with Personal Consumption Expenditure (PCE) inflation at 3.5% year-over-year and September's Consumer Price Index (CPI) rising by 3.7% year-over-year. These figures are in line with August's results and exceed economists' expectations.
Inflation Trends and Economic Prospects
Fannie Mae's ESR group has adjusted its 2023 real GDP prediction to 2.5% on a Q4/Q4 basis but still anticipates a modest recession in the first half of 2024.
Revised Economic Projections and Potential Recession
Despite initial expectations, home prices have proven to be more resilient. Consequently, Fannie Mae has revised its 2023 home price forecast from 3.9% to 6.7% on a Q4/Q4 basis.
Real Estate Market Resilience and Home Price Expectations
However, Fannie Mae foresees a deceleration in home price growth in 2024, primarily due to affordability constraints.
Housing Market Projections for 2024
While declining home sales may occur due to the increase in mortgage rates, Fannie Mae expects the impact to be less severe compared to the slowdown observed in 2022.
Anticipated Trends in Home Sales
The annualized pace of existing home sales is predicted to fall below 4 million units in the fourth quarter, according to Fannie Mae.
Existing Home Sales Outlook
New home sales are holding up better than existing home sales, largely due to ongoing inventory constraints. However, Fannie Mae's ESR group anticipates a modest deceleration in both new single-family sales and starts in the coming quarters.
New Home Sales and Inventory Trends
Fannie Mae predicts that 2023 mortgage originations will remain relatively unchanged at $1.3 trillion.
Mortgage Origination Projections
In 2024, Fannie Mae expects purchase volumes to increase by 10% to $1.4 trillion, marking a $7 billion increase from September's forecast, as stronger home price expectations outweigh minor downward revisions to the sales forecast.
Outlook for Mortgage Originations in 2024
Fannie Mae's Chief Economist, Doug Duncan, concludes that the higher mortgage rate environment is likely to dampen housing activity and further complicate housing affordability into 2024.
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