Mortgage Rates Expected to Dip in 2024, Below 6 Percent, Boosting Home Sales
The real estate market is set for a significant shift in 2024. After years of roller-coaster dynamics, the housing sector anticipates a return to a more stable state. The Economic and Strategic Research (ESR) Group of Fannie Mae brings promising news for prospective homebuyers and the mortgage industry. Their January 2024 commentary unveils a hopeful outlook amidst economic uncertainties, suggesting a gradual balancing act in the housing market.
One of the key highlights from the ESR Group’s forecast is the expected decrease in mortgage rates. They predict that rates will fall below 6 percent by the end of 2024. This anticipated drop is a significant relief for many, especially considering the tumultuous fluctuations seen in recent years. The lower rates are not just good news for new homebuyers but also for those looking to refinance. The Fannie Mae’s Refinance Application-Level Index already shows a burgeoning trend, with refinance volumes projected to nearly double their 2023 levels in 2024.
The dip in mortgage rates is poised to revive the existing home sales market, which has been grappling with the “lock-in effect.” This refers to the reluctance of homeowners to sell or refinance due to higher current mortgage rates compared to their existing ones. The ESR Group forecasts a surge in the annualized pace of existing home sales, reaching up to 4.5 million units by the fourth quarter of 2024. This is a noticeable uptick from 3.8 million in the last quarter of 2023.
Despite these optimistic projections, the path to a full recovery is expected to be lengthy. The housing affordability crisis, exacerbated by income disparities and ongoing supply shortages, continues to pose significant challenges. The existing homes market, particularly strained by these factors, will likely drive more interest toward new single-family homes. However, new constructions in 2024 are anticipated to outperform 2023 levels, bringing some respite.
Home price growth is also expected to stabilize. The ESR Group projects a 3.2 percent increase in home prices over 2024, a marked slowdown from the 7.1 percent growth in 2023. This moderation suggests a balancing market, where exorbitant price hikes are less likely.
“We anticipate that after the past several years of extreme volatility in interest rates, the 30-year fixed rate mortgage rate will continue to moderate over the course of 2024, moving toward a rate below 6% by year end,” Fannie Mae’s latest market outlook stated
The broader economic landscape plays a crucial role in these projections. The ESR Group anticipates a slower economic growth in 2024, but not as dire as previously feared. Earlier concerns of a mild recession have been replaced by expectations of modest growth. Factors like the easing of financial conditions post the Federal Reserve’s December meeting and the uptick in real personal income growth contribute to this outlook. However, the risk of recession still looms, underscoring the uncertainty of these forecasts.
Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, encapsulates this sentiment. He anticipates a gradual recovery in home sales and mortgage origination, buoyed by declining inflation and potential rate cuts. However, he cautions that even with rates falling below 6 percent, there’s still a long way to go to mitigate the “lock-in effect” fully.
In summary, 2024 appears to be a pivotal year for the housing market and the mortgage industry. With the anticipated dip in mortgage rates, the easing of home prices, and a cautiously optimistic economic outlook, there’s a glimmer of hope for homebuyers. Nonetheless, the journey to a fully balanced and affordable housing market remains an ongoing endeavor.
Interviews, tips, guides, industry best practices, and news.
