In a promising turn of events, Fannie Mae is charting a positive course for the mortgage market, with projections indicating that rates will drop below 6% by the end of 2024. This anticipation has far-reaching implications, boosting refinance volumes and contributing to the thawing of the existing home sales market. As we explore Fannie Mae's insights, the gradual return to balance in the housing market becomes evident after years of volatility in mortgage rates.
Strategic Passive Investments' Perspective: Commenting on these developments, CEO Charlie Sells of Strategic Passive Investments shares his insights. "Fannie Mae's projections align with our strategic approach to passive investments. The expected dip in mortgage rates creates opportunities for investors looking to navigate the real estate landscape," notes Sells. "As we witness the market's gradual recovery, strategic passive investments can play a key role in capitalizing on emerging trends."
The Economic and Strategic Research (ESR) Group's Expectations: Fannie Mae's Economic and Strategic Research (ESR) group anticipates a slow but steady recovery in home sales and mortgage origination activity against the backdrop of a slow-growing economy. Doug Duncan, Fannie Mae’s Senior Vice President and Chief Economist, highlights the impact of inflation's decline and the Fed's pivot, signaling future rate cuts. This, he suggests, marks the likely bottoming out of home sales and mortgage originations in the second half of 2023, paving the way for a gradual improvement.
Housing Market Metrics: The ESR group foresees the annualized pace of existing home sales reaching 4.5 million units by the fourth quarter of 2024, up from 3.8 million in Q4 2023. Fannie Mae expects the normalization of the existing homes market, coupled with additional housing supply from new constructions, to curtail further home price growth in 2024. Home prices are projected to rise by 3.2% over the year, a significant decrease from the 7.1% seen in 2023.
Origination Volume Forecast: Looking ahead, Fannie Mae forecasts a total single-family mortgage origination volume of $1.98 trillion in 2024, rising to $2.44 trillion in 2025. Of this, $1.5 trillion is expected to come from purchase origination volume, reflecting a 19% increase from $1.3 trillion in 2023.
Refinance Outlook: Despite the favorable conditions, refinance mortgage origination volume is anticipated to remain subdued in 2024. Approximately 90% of outstanding Fannie Mae single-family conventional 30-year fixed-rate mortgage loans currently have a note rate below 6%. The ESR group suggests that while recent borrowers may benefit from refinancing, a strong refinance wave driven by rate-term borrowers is not expected in 2024.
Positive Economic Shift: In a positive economic update, Fannie Mae has revised its outlook, replacing the explicit call for a recession in 2024 with an expectation of "below-trend growth." The ESR Group attributes this shift to the recent easing in financial conditions following the Federal Reserve’s December meeting and a solid, upward trend in real personal income growth.
Risks and Caution: Despite the positive momentum, Fannie Mae acknowledges potential risks to the economic outlook. Mixed labor market signals, a recent rise in shipping rates due to attacks on container vessels, and easing monetary policy are identified as factors that could pose challenges. The ESR group emphasizes the need for caution, stating that the economy remains at a higher-than-normal risk for a recession in 2024.
Conclusion: As we navigate the complexities of the 2024 housing market, Fannie Mae's projections offer a glimpse into potential opportunities and challenges. Strategic Passive Investments, in alignment with Fannie Mae's insights, emphasizes the importance of strategic and passive investments in capitalizing on the evolving real estate landscape. With CEO Charlie Sells providing valuable perspectives, investors can approach the market with informed strategies, leveraging the anticipated changes for a successful investment journey.