Fannie forecast revised downward, but ‘modest upward drift’ in sales remains likely

Mortgage rates anticipated to linger around 7% through end of year

Fannie Mae’s Economic and Strategic Research (ESR) Group expects mortgage rates to end the year near 7%, with housing activity projected to slow modestly compared to its previous forecast, though a sizeable decline in home sales is unlikely.

“The question our economics team is asked most frequently by industry participants remains where we think mortgage rates are headed,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “For now, we see rates remaining closer to 7% through the end of the year — before trending downward in 2025 — but note potential downside to that forecast given recent actual [downward] movements in rates.”

Fannie continues to predict two rate cuts before the close of this year, the first coming after the Federal Reserve’s meeting in September. Inflation measures are expected to regain moderate momentum, gradually trending back toward the Fed’s 2% goal. The Fed, however, is likely to err on the side of caution with signs still lingering that inflation may stay stickier than anticipated.

Duncan added that Fannie’s consumer survey suggests that households continue to take a wait-and-see approach in the hopes that affordability takes a more favorable turn. With active home sale listings now up some 30% compared to last year, the ESR believes a large decline in home sales appears unlikely and anticipates a “modest upward drift” in resales over the forecast horizon, especially given the weak sales environment of the past two years. But Fannie’s forecast also doesn’t project a dramatic improvement in the pace of activity until a significant downward trend in mortgage rates, which, per Fannie, “appears to be the likeliest lever to achieve an improvement in affordability.”

Fannie’s May forecast now calls for 2024 total home sales of 4.89 million units, down slightly from the prior forecast of 4.96 million units. In 2025, Fannie expects total sales at 5.29 million, down from the previously forecast 5.47 million. Consistent with the expectation of slower sales, the originations forecast has been revised to $1.73 trillion for 2024 and $2.08 trillion in 2025, down from $1.81 trillion and $2.26 trillion, respectively, in Fannie’s most recent forecast.

If those figures are realized, 2024’s total home sales would represent a 2.8% increase from the prior year, and 2024’s origination volume would equate to a 17.6% jump from origination volume in 2023.


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