According to Fannie Mae’s Economic Developments, there will be a mild recession in 2024 followed by a recovery in 2025. GDP surged to 4.9 percent annualized growth in the third quarter of 2023. However, they believe this is based on consumption spending from savings and is unsustainable. Real personal incomes grew at only 0.6 percent annualized. The personal saving rate fell to 3.4 percent in September, well below its typical pre-pandemic level of roughly 7 percent. They therefore expect consumption growth will moderate as spending and income return to a more historically normal relationship.
They project home sales will likely bottom out in early 2024, regardless of whether there is a mild recession or a “soft landing,” as the drag from high mortgage rates passes. They forecast mortgage rates to decline gradually over the next two years. When mortgage rates do ease, they expect sales will begin to rebound, albeit modestly due to the ongoing lock-in effect. They believe that the continuing lack of existing homes for sale will likely remain supportive of new construction.
In response to mortgage rates approaching 8 percent this fall, mortgage application activity continues to trend downward, with purchase mortgage applications in October hitting the lowest level since 1995, according to the Mortgage Bankers Association.
They expect some softening in single-family housing starts soon, as homebuilder confidence surveys have weakened due to higher mortgage rates. However, if rates pull back even modestly, the mid-term outlook for new home sales and single-family housing starts will be solid. There is a lack of existing homes available for sale and a long term deficit in the housing stock relative to demographic trends. This will support new construction.
They expect existing home sales to begin to rebound later in 2024 as mortgage rates pull back. While the lock-in effect and the low number of homes available for sale will likely persist for some time, these issues will begin to diminish, and affordability will improve modestly on 30-year fixed mortgage rates below 7 percent. The recovery to a pre-pandemic level of sales will likely take years, but Fannie Mae forecasts the bottom will be passed in 2024. This is for number of sales, not real estate values.