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Fannie Mae Forecast: Economy Will Pick Up in 2025

Following seasonal real estate trends which typically follow the formula of strong summers and weak winters when school is in session, in new commentary from Fannie Mae’s Economic and Strategic Research Group (ESR) is now predicting that the real estate market will bottom out sometime early next year before picking up and will consistently grow leading to a strong year in 2025. 

While the combination of ongoing employment gains and decelerating inflation has increased the likelihood of a soft landing, the ESR group contends that, between a likely slowdown in consumption growth stemming from an imbalance between spending and incomes and the rising real federal funds rate weighing on consumer and business activity, a downturn remains the most likely outcome. 

While mortgage rates have hit 8% of late (and have subsequently fallen to about 7.5% recently according to data from Freddie Mac), the ESR expects existing-home sales to decline further in the near term and hit a market low sometime early next year. 

Now, whether the economy as a whole manages a soft landing or enters into a recession is yet to be seen, the ESR group is now forecasting mortgage rates in 2024 will retreat from recent highs and decrease to an average of 6.8% by the final quarter of next year. 

As such, the ESR group expects home sales to begin to increase modestly over 2024 but to remain constrained by the likely persistence of the so-called "lock-in effect" and the low supply of homes for sale. New home sales and starts, which have remained comparatively resilient over the past year, are expected to remain so in 2024. 

"The economy is now slowing from the otherwise robust first estimate of third quarter growth," said Doug Duncan, Fannie Mae SVP and Chief Economist. "The slowdown in employment gains has continued, and stress is growing on consumers' ability to sustain their high levels of spending—unsurprising results that we attribute to the often-lagged economic effect of monetary policy tightening. At the same time, housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity. While many current owners with low mortgage rates will likely continue to be discouraged from listing their homes, we expect mortgage rates to trend modestly downward in 2024, which should help kickstart a gradual recovery in home sales into 2025." 

Click here to read the ESR’s statement in its entirety. 

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at [email protected].

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