2024 Housing Market Outlook: Implications for Mortgage Lenders

January 22, 2024

By: Donald Stimpert, Manager of Secondary Market QC Services

Fannie Mae’s recent revised forecast for 2024 and beyond unveils a nuanced projection that holds significance for community banks and credit unions navigating the intricate landscape of the housing market. The insights presented by Fannie Mae’s Economic and Strategic Research (ESR) Group encapsulate essential indicators and predictions that will influence the housing and mortgage sectors in the forthcoming year.

Economic Deceleration and Housing Recovery

The December report anticipates a potential economic slowdown in 2024, aligned with a gradual recuperation in both home sales and mortgage originations. Although initially forecasting a modest recession for 2023, the economic resilience has surprised many market analysts. Fannie Mae now perceives the possibility of a softer landing due to disinflation and low unemployment rates. However, the housing sector faced challenges in 2023, witnessing record-low affordability, lock-in effects, and a severe deficit in available for-sale housing, leading to the lowest existing home sales since the Great Financial Crisis.

Factors Impacting Home Sales in 2024

Fannie Mae’s analysis points to a challenging landscape ahead. 2023 set a record low for existing home sales since 2010, setting the stage for a gradual recovery in 2024. Yet, obstacles like unaffordability, lock-in effects, and constrained inventory persist, likely causing a marginal impact on 2024’s total home sales compared to the previous year.

Despite glimpses of potential relief, these hurdles are expected to persist. Although the decline in the 10-year Treasury rate offers a glimmer of hope for better sales and mortgage originations, persistently high mortgage rates forecast subdued home sales at around 4.8 million in 2024, with a modest increase to 5.4 million by 2025.

October’s rock-bottom existing sales at 3.79 million could signal a turning point. Recent shifts in purchase mortgage applications, fueled by notable drops in mortgage rates, hint at a possible sales uptick. This trajectory depends on further rate moderation, potentially leading to increased sales.

Moreover, Fannie Mae’s projection of a slight dip in new home sales contrasts with unexpected buyer resilience amidst rising rates. This unexpected stability, boosted by concessions from builders, hints at sustained sales consistency.

This sales resilience, coupled with an unforeseen home price rebound, shapes Fannie Mae’s view on mortgage originations. Despite fluctuations, the forecast indicates a subtle upward trend, aligning with current origination levels.

Upgraded Projections for Single-Family Mortgage Originations

Amidst these challenges, Fannie Mae projects a positive trajectory in total single-family mortgage originations:

  • $1.5 trillion in 2023
  • $1.9 trillion in 2024
  • $2.3 trillion in 2025

This upgrade stems from a positive outlook on purchase mortgage origination volumes. Forecasts indicate a substantial increase to $1.4 trillion in 2024, a noteworthy leap from the anticipated $1.3 trillion in 2023. Looking ahead, the trajectory continues its upward trend, projecting $1.6 trillion in purchase origination volumes by 2025. Simultaneously, refinance origination volumes are on an upward trajectory, poised to surge to $451 billion in 2024 and further escalate to $686 billion in 2025.

Dynamics of Mortgage Rates and Home Sales

The report reflects on the impact of declining interest rates, projecting a shift to an average FRM30 rate of 6.7% in 2024 and 6.2% in 2025, down from the current 7.4% in Q4 2023. However, the transition in monetary policy might introduce volatility in mortgage rates, presenting a potential risk factor for these projections.

New vs. Existing Home Sales, Housing Starts, and Price Growth

The resilience of new home sales, unexpected amidst economic uncertainties, and the lower-than-expected impact of high mortgage rates on sales showcase a trend where buyers seem less affected by increased rates compared to previous years. Homebuilders’ concessions, including mortgage rate buydowns, aim to stimulate sales amidst these challenges.

Implications for Community Banks and Credit Unions

Understanding Fannie Mae’s 2024 outlook is crucial for community banks and credit unions to tailor their strategies. The projected increase in mortgage originations presents both opportunities and challenges, urging these institutions to adapt swiftly to evolving market dynamics and consumer behaviors.

In conclusion, Fannie Mae’s revised outlook for 2024 emphasizes the need for adaptive strategies by community banks and credit unions to harness opportunities amid the projected housing market landscape. Staying informed about these forecasts will empower these financial institutions to navigate potential challenges while capitalizing on growth prospects effectively.

Secondary Market Quality Control

Young & Associates stands as a trusted ally for financial institutions amid Fannie Mae’s housing market projections. Specializing in secondary mortgage quality control, our QC services serve as a shield against risks, meeting federal and private investor requirements, including those of Fannie Mae. As Fannie Mae anticipates a gradual housing market recovery and increased mortgage activities, partnering with Y&A can fortify your institutions’ risk management strategies. Our meticulous evaluations ensure compliance readiness and accuracy, aligning financial entities with market shifts highlighted by Fannie Mae, securing robust mortgage operations for the future. Visit our website for more information or contact us here.

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