Economists at government-owned mortgage-buying giant Fannie May say they think residential mortgage rates might drop below 6 percent this year, sometimes seen as a critical horizon to get home sellers back on the market.
January’s monthly forecast from Fannie Mae’s Economic and Strategic Research stated that mortgage rates are likely to decline this year, ending 2024 below 6 percent.
The move in rates will help increase the pace of home sales up as the year winds on as more sellers find it practicable to put their homes on the market. However, a full recovery to the pre-pandemic sales rate is expected to take years, economists said, as housing affordability remains stretched extremely thin by historical standards relative to household incomes.
The trend could help keep further home price growth in check in 2024. The Fannie Mae economists think home prices are now expected to rise 3.2 percent over the year, compared to 7.1 percent in 2023.
Still, despite the improving interest rate picture, the economy faces “higher-than-normal risk of recession,” the economists said.
“In 2024, we expect home sales and mortgage origination activity to begin a gradual recovery in the presence of a slow-growing economy,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a statement. “Inflation’s decline and the resultant Fed pivot to signaling future rate cuts rates lead us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023 and that a gradual improvement is now underway. We expect mortgage rates to dip below 6 percent by year-end 2024 and for homebuilders to continue to add new supply, both of which should aid affordability.”
Lenders looking for refinance business should have hope, he added.
“Additionally, the decline in mortgage rates is likely to push refinancing volumes upward, along with some pickup in purchase financing. However, even at less than 6 percent, we think rates will still have a significant way to go in order to meaningfully reduce the ‘lock-in effect’ experienced by homeowners who refinanced or bought during the pandemic,” he said. “Overall, we expect 2024 to be a better year than 2023 for homebuyer affordability and the mortgage industry.”
