With mortgage rates approaching 8% this fall, Fannie Mae’s Economic and Strategic Research (ESR) Group is projecting existing home sales of 3.9 million units on an annualized basis during the fourth quarter which, if realized, would mark the slowest pace of transactions since 2010.
The ESR Group’s most recent forecast anticipates a likely bottoming out of home sales in early 2024, regardless of a mild recession or a soft landing. When mortgage rates ease, Fannie expects a consequent rebound in sales, although any recovery will begin in modest fashion due to the lock-in effect of current borrowers’ rates still being far lower than those being offered on the market.
The road to a pre-pandemic level of sales will likely take years, Fannie’s report said. But the bottom will likely be passed in 2024.
The government-sponsored enterprise now expects total home sales of 4.8 million units in 2023, virtually unchanged from its prior forecast. The sales projection for 2024 was amended slightly downward from 4.8 million in Fannie’s prior forecast to 4.7 million. Sales are predicted at 5.3 million in 2025 and the current forecast is the first with 2025 added to the outlook.
“Housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “While many current owners with low mortgage rates will likely continue to be discouraged from listing their homes, we expect mortgage rates to trend modestly downward in 2024, which should help kickstart a gradual recovery in home sales into 2025.”
On the mortgage lending side, the ESR Group now expects residential purchase volume of $1.3 trillion in 2023, down $28 billion from last month’s forecast. Next year’s originations were downwardly revised as well. Fannie now forecasts $1.4 trillion in purchase volume in 2024, down $31 billion from the prior estimate. Originations are expected to climb to $1.6 trillion in 2025.
This year’s forecast of $252 billion in refinances remains virtually unchanged from the prior estimate. The 2024 refi forecast, however, was trimmed by $28 billion compared to last month’s projection and now stands at $428 billion. The decline in the estimate was precipitated by a higher mortgage rate forecast this month, as well as the ongoing paucity in refi application activity. In 2025, refi originations are now expected to grow to $625 billion.