Dropping Rates Should Boost Home Sales in 2024

According to Fannie Mae’s Economic and Strategic Research (ESR) Group, the housing market is expected to begin a gradual return to something that resembles “normal” in 2024, following years of COVID-19 pandemic turbulence. 

According to commentary from the ESR, they expect mortgage rates to decline in 2024, ending the calendar year somewhere around the 6% mark. This lower rate environment is expected to boost refinance volumes—something that has all but dried up since the ultra-low rates seen during the early days of the pandemic—which are showing early signs of rebounding according to Fannie Mae’s Refinance Applicaiton-Level Index, to nearly their double their 2023-2024 levels. 

Lower mortgage rates are also likely to help thaw the existing home sales market which is currently being affected by the lock-in effect. Further, the ESR expects the annualized pace of existing home sales to move up to 4.5 million units by the fourth quarter of 2024 compared to the 3.8 million units during the same quarter in 2023. However, a full recovery to the pre-pandemic sales rate is expected to take years, as housing affordability remains stretched extremely thin by historical standards relative to household incomes. The ongoing lack of supply and affordability constraints in the existing homes market are expected to continue to bolster the market for new single-family homes, with 2024 starts and new home sales forecast to top 2023 levels. 

Overall, though, the ESR Group expects that the slowly normalizing existing homes market, as well as additional housing supply from the construction of new homes, will help keep further home price growth in check in 2024: Home prices are now expected to rise 3.2% over the year, compared to 7.1% in 2023. 

The ESR Group’s latest forecast continues to project a slowdown in economic growth in 2024; however, it now anticipates a brighter economic backdrop compared to previous months, having replaced its call for a modest recession with positive-but-below-trend growth in 2024. The ESR Group notes the rapid recent easing in financial conditions following the Federal Reserve’s December meeting and the solid, upward trend in real personal income growth in October and November as positive impulses for growth over the coming quarters. 

However, the ESR Group underscores that the current forecast includes heightened uncertainty and significant downside risks, and maintains that the economy still faces higher-than-normal risk of recession. 

“In 2024, we expect home sales and mortgage origination activity to begin a gradual recovery in the presence of a slow-growing economy,” said Doug Duncan, Fannie Mae SVP and Chief Economist. “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% by year-end 2024 and for homebuilders to continue to add new supply, both of which should aid affordability. 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%, 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. Overall, we expect 2024 to be a better year than 2023 for homebuyer affordability and the mortgage industry.” 

Click here to see the ESR’s research in its entirety.