Mortgage rates inched slightly higher last week but are expected to fall by the end of 2024.
The reasons for this revision include signalling from the Federal Reserve that rate cuts were on the table for 2024, slowing inflation and an upward trend in the growth of real personal income.
“Inflation’s decline and the resultant Fed pivot to signaling future rate cuts lead us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023..." Doug Duncan, senior vice president and chief economist at Fannie Mae, said, "And that a gradual improvement is now underway.”
Mortgage rates below 6% would ‘thaw’ the housing market.
Low resale inventory has been a boon to home builders, who are seeing an uptick in demand from buyers. Historically, newly built homes represent about one-tenth of housing inventory, but last year, that share rose to one-third.
If mortgage rates fall below 6% by the end of 2024, that would prompt more homeowners to refinance, “thaw” the existing-home sales market and ease the lock-in effect, Fannie Mae said. If rates fall even lower, to the 5% range, that would further stimulate home sales, it noted.
But “a full recovery” to pre-pandemic levels “is expected to take years,” Fannie Mae stressed, “as housing affordability remains stretched extremely thin by historical standards relative to household incomes.”
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What others are saying...
According to Yun, “The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices... Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand.” The Fed is likely to cut rates four times this year, which will keep the 30-year fixed-mortgage rates bouncing between 6-7%.
NAR also released its economic outlook as of January 2024, projecting a 13% increase in existing-home sales in 2024 to 4.62 million and a 15.8% increase in 2025 to 5.35 million. The annual median home price is expected to rise 1.4% to $395,100 in 2024, and then increase 2.6% to $405,200 in 2025.
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